Demand-supply imbalances may continue to exert pressure on food items such as pulses and edible oils, and the prices of cereals may soften going forward on the back of bumper foodgrains production in 2020-21, the Reserve Bank of India (RBI) said in its Annual Report.
Demand-supply imbalances may continue to exert pressure on food items such as pulses and edible oils, and the prices of cereals may soften going forward on the back of bumper foodgrains production in 2020-21, the Reserve Bank of India (RBI) said in its Annual Report on Thursday. The apex bank expects the global crude oil prices to remain volatile in the near term.
The gap between the Wholesale Price Index (WPI)- and Consumer Price Index (CPI)-based inflations reflected the behaviour of food inflation, the report said. It added that CPI-based food inflation surged following a nationwide lockdown last year, even as the food inflation captured in WPI eased. “This reflects the role of supply chain disruptions and opportunistic pricing in raising mark-ups.”
The RBI also said the extent of retail price increase in the post-lockdown period was also much higher than the usual summer uptick in food prices. The substantial wedge between wholesale and retail inflations during the year pointed to persistence of supply-side bottlenecks and higher retail margins, underscoring the importance of supply management, the RBI said in the report.
“Pressures from food items like pulses and edible oils are likely to persist in view of supply-demand imbalances, while cereals’ prices may continue to soften with the bumper foodgrains production in 2020-21,” it said. On crude oil prices, it said the prices have picked up on optimism of demand recovery and continuation of production cuts by OPEC+ nations.
Crude oil prices are expected to remain “volatile in the near term”, the RBI said. “Cost-push pressures have also emanated from non-energy commodity prices and could firm up further as economic activity normalises and demand picks-up,” it added. The RBI said the impact of the second wave of pandemic may also affect inflation going forward.
“As pandemics typically leave markets less competitive, the increase in number of active COVID-19 cases with the beginning of second wave from March 2021 along with the associated effects on supply chains amid containment measures could also affect inflation going forward,” said the report. Headline inflation, measured by year-on-year changes in Consumer Price Index, was elevated for most part of the year led by supply chain disruptions due to the pandemic and spikes in key food prices.
The headline inflation during 2020-21 picked up to an average 6.2 per cent, up by 140 basis points (1.4 percentage) from the previous year, the RBI said. The WPI-based inflation during 2020-21 remained subdued, went into deflation during April-July 2020 before reaching an intra-year low of (-)3.4 per cent in May 2020. It was the lowest in 54 months mainly on account of fall in global commodity prices of non-food primary articles and decrease in demand during the lockdown. WPI-based inflation softened to 1.3 per cent in 2020-21 from 1.7 per cent in 2019-20.