Data | Vegetable prices in India are on a rollercoaster ride

As there is an alternating pattern of inflation peaks and deflation troughs, vegetable prices are highly volatile

On Monday, a member of the Prime Minister’s Economic Advisory Council, Poonam Gupta, expressed her disappointment in the manner in which “monetary policy is held hostage by vegetable prices”. She termed monetary policy as a “blunt instrument” to address vegetable inflation. “Surely, our economy, which is more than $3 trillion, can manage its vegetable prices better than it has. These shocks, which hold the policymakers’ attention unduly, I would say… can be addressed better,” she said at a discussion hosted by the Ananta Centre on the upcoming Union Budget. The “shocks” that Ms. Gupta was referring to are the highly volatile retail and wholesale prices of food products, especially vegetables. These shocks jolt the Indian economy every year. During some years, vegetable prices skyrocket and burn a hole in the pockets of consumers. During others, they crash, leading farmers to dump their produce owing to negative returns.

Chart 1 depicts the overall retail inflation and vegetable retail inflation every month between January 2014 and November 2022. Compared to vegetable inflation, overall retail inflation remained steady in the period considered, oscillating between +1.4% and +8.6%. However, vegetable inflation wildly swung between -22% (deflation) and +60%.

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If we examine the January 2014-November 2022 period, vegetable prices hit a peak in a month and then rapidly declined. This led to a trough a year later. This was again followed by a rapid ascent leading to a newer and much bigger peak, a year later. The gap between peak inflation and peak deflation has also widened in recent months pointing to an increase in the volatility of a commodity which was already volatile.

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Chart 2 shows the retail inflation of select vegetables in the December months of each year. The graph further establishes the volatile nature of vegetable prices. Every odd year there was inflation of vegetable prices, and every even year there was deflation. This cycle was seen across all vegetables, which means that the trend is not confined only to onions, tomatoes and potatoes — the three vegetables produced and consumed widely.