Economic fears as Indian food prices soar

Indian food prices have hit their highest level in more than a year, rising at an annual rate of 18 per cent in what economists have taken as a worrying sign that the impact of surging commodity prices is hitting the broader economy.

Food inflation in India is being driven by many of the same factors that have pushed the price of global commodities like wheat and barley to record highs. It also highlights rising fears of a global prices in the developing world, with the UN’s Food and Agricultural Organisation warning this week that global prices had surpassed levels seen during the 2007-08 crisis.

Bihari Lal, a 40-year-old fruit trader, said: “Buying fruit is a luxury for most people. They would rather spend the money on vegetables for an evening meal than for buying bananas, papayas, oranges and melons. For the poor it is unthinkable. So I am buying less fruit to sell to avoid wastage, but I am going through a bad time.”

India’s commerce and industry ministry said on Thursday that food prices rose at an annual rate of 18.32 per cent in the week to December 25.

The move capped more than a year of double-digit food price inflation for India, where millions still spend more than 50 per cent of their household income on food.

For Chhaya Singh, a 17-year-old student shopping for daily staples in Mumbai’s Colaba market, that has meant that even the cheapest and most basic meal of potato curry has become too expensive. “We have to find alternative vegetables,” she said.

For Nahi Chaudhary, a 38-year-old Mumbai housewife, the higher prices have meant buying fewer aubergines, okra and other now expensive vegetables. “The increase in price is terrible,” she said. “In fact we don’t eat out at all any more as restaurants have even increased their charges.”

Although still below the more than 20 per cent inflation levels seen in 2009, economists fear that a long-term structural shift in food consumption means prices are likely to be an ongoing concern for politicians and the Reserve Bank of India, the central bank.

According to Shubhada Rao, chief economist at Yes Bank in Mumbai, there is a “structural rigidity” in food inflation. “[This] is reinforcing fears that it will spill over to broader inflation, putting pressure on the Reserve Bank of India (RBI) to raise interest rates,” she said.

Nalini Rao, senior research analyst at Angel Commodities, said the price rises had hit a changing array of staples over the past year. “In June food inflation was driven by pulses and milk, while for December it is driven by crops such as onions [and] other vegetables such as potatoes and spices.”

The International Monetary Fund on Wednesday urged the RBI to maintain a tight monetary policy stance and keep raising interest rates in its efforts to tame inflation.

The latest sharp rise in Indian food inflation was partly due to the jump in the price of onions, a staple ingredient for India’s curries, which in recent weeks developed into a national scandal.

Manmohan Singh, the country’s prime minister was forced to step in and seek imports from Pakistan, in order to bring prices down to more reasonable levels. Onion prices suddenly doubled, after unseasonable rains in onion-growing regions damaged crops.

“It impacts us very much,” said Mina Singh, who runs a small canteen at a New Delhi arts centre, saying she is now spending Rs1,000 ($22) every two days on onions. “We can’t change the recipes – people will start complaining,” said Ms Singh. “We also serve onions as accompaniments alongside the dishes, but we can’t start charging for that – it’s like charging for water.”

Ali Mohammad, a 30-year-old onion trader in Mumbai, said: “People have to buy the same number of onions, it’s a staple, so that is why I haven’t seen any change in sales. But what I have seen is that rather than buying 1kg at a time as before, they will buy less, but more often so it is manageable.”