By The Sampadak Express
The Economic Survey for 2024-25 has highlighted that while overall inflation in India has moderated, food prices continue to remain elevated, posing a challenge for consumers. The survey reports that retail headline inflation, which tracks the change in the Consumer Price Index (CPI), eased from 5.4% in the 2023-24 fiscal year (FY24) to 4.9% in the current fiscal year (FY25) up until December 2024. This decline in overall inflation is largely attributed to a significant drop in core inflation—non-food and non-fuel prices—which fell by 0.9 percentage points during the April-December 2024 period.
However, the global picture is more complex, as food inflation remains persistently high in emerging economies such as India, China, and Brazil, in contrast to the general downward trend observed in developed countries. This discrepancy is primarily driven by supply chain disruptions and fluctuating weather conditions in these countries, which have impacted food prices.
Factors Behind India’s Elevated Food Inflation
The survey underscores the continuing pressure on food prices in India, noting that food inflation has climbed from 7.5% in FY24 to 8.4% in FY25 (April-December). A significant factor contributing to this rise is the price increase in certain food items, particularly vegetables and pulses. While vegetables and pulses together account for just 8.42% of the overall CPI basket, they have contributed to 32.3% of the total inflation in FY25 so far.
Vegetables have proven to be highly vulnerable to extreme weather events, including cyclones, droughts, and unpredictable rainfall, which have severely disrupted supply chains. These factors have caused volatility in prices, making it difficult for consumers to benefit from price stability in the food sector. Pulses, too, have faced similar issues related to production delays and supply disruptions, adding to the inflationary pressures on food costs.
Global Inflationary Trends and Risks
Globally, inflationary pressures have been easing, driven by an improvement in supply conditions and favorable growing environments that have led to a decrease in global food prices. However, emerging markets like India, China, and Brazil have reported a contrasting trend, with food inflation remaining stubbornly high. This divergence can be attributed to various domestic factors, including supply chain disruptions and adverse weather, as well as localized geopolitical tensions.
The survey also points to the potential risks that could derail the global disinflationary trend. Geopolitical disruptions, such as the ongoing conflicts in the Middle East and the Russia-Ukraine war, continue to pose risks for global price stability, particularly in energy and agricultural commodities. These tensions could result in synchronized price pressures, even as global inflation shows signs of easing.
Central Banks’ Response to Inflation
The survey further notes that central banks around the world have adopted more accommodative monetary policies in response to the easing inflationary pressures. However, the pace at which these policies are implemented varies by region, reflecting different economic conditions and growth imperatives. While some economies have aggressively cut interest rates to spur growth, others are taking a more cautious approach, depending on their progress in reducing inflation.
This disparity in monetary policies across regions could lead to potential divergences in economic recovery, with some countries experiencing faster rebounds than others. In the Indian context, the government’s economic management is expected to continue balancing inflation control with the need for growth stimulation.
Outlook for Food Inflation in India
Looking ahead, the Economic Survey predicts that food inflation in India could ease somewhat in the January-March quarter of FY25. This is expected due to a combination of factors, including the seasonal arrival of the Kharif harvest and a likely decrease in vegetable prices. However, the survey also emphasizes that significant risks remain. Global agricultural commodity prices could surge again due to geopolitical instability or shifts in global supply, while adverse weather events could further disrupt domestic food production.
Moreover, while global energy and commodity prices have softened recently, easing core inflation in several countries, the survey cautions that the global political and economic landscape remains volatile, creating uncertainties that could affect both domestic and global inflation trends.
In conclusion, while India has seen a decline in overall inflation, food prices remain a persistent concern, driven by specific vulnerabilities in the agricultural sector. The government’s ability to manage food inflation, especially in the face of unpredictable weather and supply disruptions, will be crucial in the months ahead. Additionally, global factors such as geopolitical tensions and commodity price fluctuations continue to pose risks that could impact both domestic and global inflation, making the economic outlook highly dependent on the resolution of these uncertainties.
