Vegetable inflation in India has been trending up, with more frequent price spikes in recent years. In fact, vegetable inflation also has been the most volatile in the food category. The inflation volatility is bad for consumers and farmers, and also distracts policymakers in the short term, forcing frequent and repeated price smoothening measures.
Demand for vegetables has outpaced supply. Population growth and demographic transition, income growth and the changing dietary preferences that come with it are some structural factors behind the surge in demand. While vegetable production - including per capita production - has grown, it has not kept pace with the surge in demand.
Apart from losses due to weather disturbances and pest attacks, post-harvest wastages during storage and transportation further cut the stock available in the market. Unfavourable risk-reward dynamics and price uncertainty also disincentivise vegetable growers.
Food inflation is back to haunt the Indian economy. After staying low in the June 2023 quarter, the hump in the September quarter (mainly due to higher vegetable and foodgrain inflation) and an uneven monsoon has changed India’s inflation narrative for this fiscal.
But this is not the first time a vegetable price spike has driven up food inflation. Vegetables have 15.5% weight in the food index, which is the highest after cereals and milk, and remains the most volatile component.
Besides, such spikes are frequent in India. The last time it lasted long (in double digits for seven months) was in fiscal 2020 such that the annual average vegetable inflation surged to 21.3%, taking up average food inflation to 6.7%. And back to double digits between March and September 2022, averaging 15%.
But a repeat this fiscal is unlikely.
The good news is vegetable price pressure has abated as inflation fell from its peak of 37.4% in July to 3.4% in September with fresh supplies entering the market. Prices of tomatoes (which was a major driving force) and of several other vegetables fell sharply by September. Onion prices, though, remain a pressure point.
The not-so-good news is that vegetable prices can surge afresh.
