Costly vegetables may upset inflation calculation, pushing it up by 5.5%

A steeper-than-expected surge in prices of vegetables, especially tomatoes, over the past few weeks could push India’s retail inflation towards 5.5 per cent in the July-September quarter, according to economists. 

The country’s inflation had eased to between 4 and 5 per cent in April and May, inching towards the central bank’s 4 per cent target, and likely held below 5 per cent in June as well, partly due to a supportive base, data due on Wednesday is expected to show. 

However, if the spike in vegetable prices sustains, it could push July inflation towards 6 per cent, opines Gaura Sengupta, an economist of IDFC First Bank. 

Vegetable prices, on a Consumer Price Index (CPI)-weighted basis, are up by 34 per cent so far in July, after rising by 18 per cent in June, points out Ms Sengupta, based on data provided by the National Horticulture Board. 

Tomato prices, in particular, have surged by 160 per cent month-on-month in the first week of July, IDFC First Bank Economic Research data shows, due to unseasonal rains and crop damage in certain parts of the country. 

Even if prices start to cool off, inflation could hit 5.5 per cent over July to September, Kaushik Das, Deutsche Bank’s chief India economist, has said. 

That is marginally higher than the 5.2 per cent forecast by the Reserve Bank of India.

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