Vegetable prices especially potato and onion pose upside risk to food inflation

BoB Essential Commodity Index (BoB ECI) has increased at the fastest pace since August 2023 by 5.9 per cent in March 2024, on YoY basis and by 0.4 per cent, on a sequential basis, says Dipanwita Mazumdar, Economist, Bank of Baroda.

On a seasonally adjusted basis, the increase is sharper at 0.8 per cent. Much of this is attributable to the rise in prices of vegetables such as potato and onion. Apart from this, edible oils and pulses have also provided some bit of discomfort on food inflation, the research said.

High-frequency price data showed that vegetable prices, especially potato and onion continue to pose considerable upside risk to food inflation. Potato prices were impacted as production was hampered due to unseasonal rains in December, the research said.

On a YoY basis, BoB ECI inched up to 5.9 per cent in March 2024, the sharpest pace of increase in the index observed since August 2023. This is higher compared to last month's increase of 4.2 per cent in the index. Nine out of 20 commodities have registered some momentum in prices. 

Vegetables such as potato and onion prices have gained considerably. From 5.3 per cent and 28.9 per cent increase respectively seen in February 2024, it inched up to 22 per cent and 40.1 per cent in March 2024 (on YoY basis). 

Other items where price build-up was visible were wheat (atta), edible oils such as sunflower oil, soya oil and mustard oil. Some components of pulses such as Gram dal, Masoor and Urad also showed some bit of upward correction, the research said.

On MoM basis, BoB ECI rose by 0.4 per cent in March 2024 from 0.2 per cent decline seen in February 2024. Notably, on a sequential basis, BoB ECI has been on a path of increase for the first time since December 2023. A sequential momentum was seen in 13 out of 20 commodities. The YoY and sequential picture broadly mirrored the same trend, the analyst said.

For the first 4 days of April 2024, BoB ECI has inched up further by 6.7 per cent, on YoY basis. 

On MoM basis, it has inched up by another 0.5 per cent. The sequential pick up in prices was visible for edible oils, sugar and milk. Amongst vegetables, tomato prices reversed their trajectory noting an upward correction in April 2024. 

Potato prices also increased moderately while onion prices moderated, as per Bank of Baroda research.