New Delhi: On June 1 this year, Rs 20 would have bought you a kilogram of tomatoes. By August, though, you would have been able to afford roughly half a tomato in that amount of money.
So what’s going on?
The inflation rate is predicted to remain above the Reserve Bank of India’s (RBI’s) tolerance band for the month of October. This, after India’s Consumer Price Index (CPI), a key measure of retail inflation, reached a staggering 7.44% in July, marking a 15-month high.
This surge in prices exceeded the RBI’s inflation tolerance band of 2-6% for the seventh time and went beyond 7% thrice in the past year.
The CPI is calculated on the basis of a weighted average of around 450 items of which almost 50% are food related. The recent rise in the CPI, driven in large part by soaring food prices, is leaving households grappling with the impact on their daily budgets.
Tomatoes, in particular, saw a dramatic price hike between July and August, with costs doubling in just a matter of weeks. For the first three weeks of June, tomatoes cost around Rs 20/kilo. In the third week of that month, tomato prices doubled to Rs 40/kilo, and then shot up to Rs 100/kilo by the end of the month. In August, prices reached Rs 200 and peaked at Rs 350/kilo.
But tomatoes aren’t the only food item undergoing price hikes. Cereals like rice and wheat, pulses, vegetables and spices have all seen an uptick in prices. The inflation rate for cereals and related products also increased to 13.04% year-on-year in July from 12.71% in June.
To better understand the extent of food inflation, rating agency Crisil releases a monthly ‘Rice and Roti’ report that tracks price changes of the various commodities used to prepare a vegetarian and a non vegetarian thali.
A vegetarian thali comprises roti, vegetables such as onion, tomato and potato, rice, dal, curd, and salad while for a non-vegetarian thali, chicken instead of dal is considered. The monthly change reflects the impact on the average consumer’s expenditure.
The cost of a vegetarian thali rose by 24% to Rs 33.8 and that of a non-vegetarian thali by 13% to Rs 67.3 in August, as compared to the same period in the last year, according to a report released by Crisil.
In July, the surge was on a month-on-month basis with the cost of vegetarian and non-vegetarian thalis rising 34% and 13% compared to June.
The inflationary pressure from rising food prices, an uptick in the price of fuel and a depreciating rupee has resulted in people relying on their savings to meet their consumption needs. The net household savings of Indians dropped to a five-decade low in 2023.
The net financial savings of households fell to 5.1% of the GDP in FY23, down from 7.2% in FY22. The data indicates a significant income crunch and the temporary nature of the post-pandemic increase in spending.
Worryingly, annual financial liabilities of households rose sharply, indicating larger-than-usual resort to loans for consumption purposes, Financial Express reported.
Given the increased reliance on loans to meet consumption needs and stagnant income levels, households’ loan repayment ability is bound to be affected and increase lenders’ default risk. It is also important to note that the top 10% of the Indian population holds 77% of the total national wealth. Owing to the vast income inequality in the country, the result of such inflationary pressure on different households will be vastly different across different income bands.
A survey that would enable us to adequately gauge how much money people spent on their consumption needs – the Consumer Expenditure Survey (CES) – has been carried out by the government but its findings have been withheld. The results for 2022-23 and 2023-24 CES are likely to come only after the 2024 general elections, The Wire had reported. The findings of a similar exercise done by the government in 2017-2018 were also withheld but the leaked data had shown a rise in poverty levels and a 45-year high in unemployment in 2018.
The CES findings are also integral for calculating CPI and understanding the true extent of inflation in the country. In the absence of the latest numbers, the CPI is currently calculated on the basis of more than a decade-old data from 2012.
