"Pulse" of Food Inflation

       People trying to hide their pain or expressing their disappointment/disgust through satire or jokes is not new. It has happened before....no need to add...will continue in future as well.

      The hottest such topic in India are dal (pulses) prices. In a matter of few months, price have gone up, depending upon which type of dal we are talking about by about, by say 50-100%. Maybe more...just giving a rough sense. No wonder they have become a point of discussion, satire and jokes.
    Pulses production may falter in India due to poor monsoon. We were already an importer. Internationally too prices have gone up. All of this means, it has to get reflected in Indian markets as well. Broadly that is the story of pulses.

     Aim here is not to look at pulses alone....but just to zoom out...try to get a bigger macro sense.
     We all are well aware, of how deeply related, agriculture in India is to the monsoon. We should have done better than the condition it is in, after 60 years, but that is a separate discussion altogether. Will not go there.

     To start with, just putting some data on monsoon and food inflation (Wholesale Price Index) numbers over the last few years.

    Over the last 14 seasons, last two years seems to be first time that we have had back to back deficient monsoons. In between, these two seasons, we also had heavy unseasonal rains, which had caused damage to winter crops.

    In fact this is what IMD has to say in it's report on 2015 Southwest Monsoon

   "Last year (2014) was also a deficient monsoon year with actual rainfall of 88% of LPA. Thus years 2014-2015 are the fourth two consecutive deficient monsoon years during the last 115 years. Earlier 3 cases were 1904-05, 1965-1966 & 1986-1987."
 
    This is only the 4th instance in the last 115 years that we have had 2 consecutive deficient monsoons. Almost half the districts in the country are in drought situation, as of now. Quite a few of them, for second consecutive year.
    
   Now have a look at Average Food inflation numbers (WPI) over the years.

   Since 2006 till 2013, food inflation (For the whole basket) is almost consistently ranging from high single digits to double digits. And in all these years, there was only one, 2009, where there was a genuine crisis of monsoon. All other years we had normal monsoons, also good crops.

   With this in back ground, consider what has happened in 2014 and 2015. In face of back to back deficient monsoon, food inflation first averaged down to ~6.3% in 2014 and now very close to ZERO.

   Am sure, lot of people will want to contest that "zero". Please do (even I am doing it), but let us just go through numbers once.

  The following is the September release on WPI inflation.

   Sept 2015 WPI

   Looking at the food break up, onion prices seem to have been accounted for, in terms of rise. Pulses dont seem to reflect the complete price rise in these numbers. If they are, would probably add ~3% point to the overall food inflation, which will then start looking closer to 4%.
   I do not actively track prices of all commodities mentioned here... so, as of now, taking them as given.

        So essentially, what it means is that food inflation (whole basket) over last two year has moderated in face of 2 consecutive poor monsoons.         In 2009, when there was a single year of bad monsoon....food inflation was of order of 15%.       

       Whether this is compared with the food inflation trends over previous 5-7 years, which came with all, except one, good monsoons, or if this is looked at just in standalone absolute terms... is it as bad as dal prices make us feel?
     

       Will, obviously, have to leave that to you.

       

        The other question is whether Govt could have done better, acted more proactively, particularly in case of dal? Perhaps yes. But would it have stopped the rise? To some extent yes, but not completely.


  Possible conflict points:

-       Some may want to debate whether the latest food price data, as presented, is itself correct. I cannot vouch for 100% data correctness, but am using it as broad indicator. There are likely to be discrepancies. Regional discrepancies or time lags in accounting for prices of commodities.
   If there are pricing discrepancies, it will take significantly high discrepancies to move the needle significantly on the food inflation. If those exist, obviously arguments will not hold fully.

(basing arguments on Govt inflation data can be a very risky proposition, but for lack of any other database, have to take this. Will have to take lot of flak, if data is highly misaligned from the market)

-       Consumer faces retail prices, not wholesale. Consumer Price Index (CPI) based inflation tends to be little higher than WPI. But that would be the case for all years, and thus would broadly negate, at least, in case of comparison with previous years.

-       Have sourced data from Economic Surveys and other Govt releases. But sometimes they get updated with a lot of lag. So some numbers may change a little, here or there.

-      There could be some, maybe quite a few, who are of the opinion...that no matter what the situation... Govt has to stop food prices from rising. These are personal opinions, nothing wrong. Well....in such case, I can only humbly withdraw from the debate.