Govt.’s pre-emptive measures will cool food prices: Finance Ministry

Finance Ministry says food inflation likely to be transitory due to govt pre-emptive measures & arrival of fresh crops. Govt has taken steps to restrain food inflation & imports of pulses to moderate inflation. RBI's MPC revised inflation projection to 5.4% & Govt capex driving growth. External sector needs monitoring due to industrial policies & new technologies.

The Finance Ministry of Tuesday, August 22, 2023, said the inflation in food items is likely to be transitory as pre-emptive measures by the government and arrival of fresh crops will cool prices, even though global uncertainty and domestic disruptions may keep inflationary pressures elevated for the coming months.

In its Monthly Economic Review for July, the ministry said going forward, while domestic consumption and investment demand are expected to continue driving growth, enhanced provision for capital expenditure by the government in the current fiscal is now leading to crowding in of private investment.

Items like tomato, green chilli, ginger and garlic witnessed inflation of more than 50 per cent. Hence, the abnormal increase in prices of certain specific items led to high food inflation in July 2023.

The consumer price index based retail inflation spiked to a 15-month high of 7.44 per cent in July 2023, with specific food commodities mainly driving the increase. Core inflation, however, stayed at a 39-month low of 4.9 per cent.

Cereals, pulses and vegetables exhibited double-digit growth in July compared to the corresponding period last year. Disruption in domestic production also aggravated the inflationary pressures. Interruption in the supply chain of tomatoes due to white fly disease in Kolar district, Karnataka and the swift arrival of monsoon in northern India caused a surge in tomato prices. Tur dal price also inflated due to deficient production in kharif season 2022-23, the ministry said.

"The government has already taken preemptive measures to restrain food inflation which, along with the arrival of fresh stock, is likely to subside price pressure in the market soon... The price pressure in food items is expected to be transitory," the report said, adding, global uncertainty and domestic disruptions may keep inflationary pressures elevated for the coming months, warranting greater vigilance by the government and the RBI.

Though food inflation in July is perhaps the third highest since the new CPI series began in 2014, only 48 per cent of food items have inflation of above 6 per cent, and this includes 14 food items with inflation in double digits.