Food flux: On food costs and the October tidings

Amid the cooler headline inflation, food price pressures pose a risk

The Monetary Policy Committee of the Reserve Bank of India, which meets early December for its next review, will not be too swayed by the October tidings. As per its 5.6% average inflation projection for this quarter, down from 6.4% in the previous quarter, November and December may well see an average inflation of 5.95%, fractionally short of the central bank’s upper tolerance threshold. Excluding edible oils, whose 13.7% year-on-year drop in prices played a key role in moderating the Consumer Price Index, would have meant a 5.6% rise in prices. Base effects from last year, when the Ukraine conflict had spiked edible oil prices, will start to dissipate in coming months. Similarly, while the 6.8% inflation recorded in October 2022 helped cool price rise last month, those base effects will surely ebb this month. Retail inflation had eased to 5.88% last November, with the food price index rising just 4.7%, from 7% in the previous month. The perceived retreat of inflation last month thus may only be fleeting. Households that seem to have adjusted to the continuous recent rise in living costs, by pulling back on discretionary spends and downsizing essential consumption as per industrial output trends, are likely to remain cautious rather than loosen their purse strings anytime soon. For an economy whose resilience relies on its domestic demand buffer against global shocks, reluctant or budget-cramped consumers are the biggest headwind for policymakers to strive to address.