Acche Din: Falling diesel, onion, tomato prices to cut inflation

PUNE/NEW DELHI: There is good news on the inflation front. Diesel prices are likely to fall 11% in a span of two weeks; onion has dropped to Rs 20 a kg; tomato down to Rs 20 a kg from Rs 60 a few months ago; cooking oil is cheaper, and the outlook for vegetable prices and petroleum products is encouraging.

Trade and industry bodies say food prices are likely to be moderate in the months ahead as vegetable planting has gone up 25%, particularly near big cities, raising hopes that last month’s fall in consumer and wholesale inflation would be sustained, although there are worries about the impact of the poor monsoon on prices.

The government has already cut the price of diesel by more than Rs 3 a litre this month, and the fuel is expected to fall another Rs 2.50, bringing it down about 11%. Petrol is already down to a 16-month low as crude prices tumbled from a high of $115 in June to $83 this month before stabilising at $85-$87. This helping tame inflation as well as the subsidy bill and have an overall positive impact on the economy.


"The low fuel inflation will result in Rs 15,000 crore worth of savings on the oil subsidy front compared to the budget estimate. The fiscal deficit target of 4.1% of the GDP which seemed very optimistic during the time of budget looks feasible now", said DK Pant, chief economist, India Ratings. He said government borrowings will be less than budgeted, having an impact on market interest rates, which will spur economic activity in the market.

In September, retail inflation,RBI’s key inflation measure, eased to 6.46%, while wholesale inflation dropped to a five-year low of 2.38%, the fourth straight month of moderation led by falling vegetable prices. Vegetable prices are expected to remain low.

"Vegetable production has seen an increase around all metropolitan cities with planting seen an increase of 25%. Next three months prices will be under control," said Shriram Gadhave, president of the Maharashtra based All India Vegetable Growers Association. He said a tomato farmer in Maharashtra was getting less than Rs 5 a kg where-as in retail it was being sold at Rs 40 a kg. "Prices will correct soon," he said. However, some analysts are concerned about impact of this year’s weak monsoon.

"As advance estimates have indicated shortfall in kharif harvest, it may affect prices of pulses. So we still need to be cautious on that. Anyway, India does not have enough domestic production, and is import dependent so price sensitivity will be higher", said Aditi Nayar, senior economist, ICRA. She expects average consumer price index (CPI) between 6.5-7% in by January and a little higher by March. She said diesel had a small weightage in CPI but broader impact would be visible with a lag. Fuel and light has a 9.49% weight in the CPI, relatively lower than 15% weight in the wholesale price index.

Food occupies 50% weight in the CPI.Vegetable prices have been falling post Diwali. "In the next three days potato prices will fall by 10-15% as supplies from Punjab begin," said Padam Bhushan, potato trader at Azadpur mandi in New Delhi where it was being sold at Rs 20-25 a kg.