Tomatoes at Rs. 180 per kg, ginger at Rs. 600 per kg, the common man's curry is facing the onslaught of inflation.
Rising food prices, particularly of tomatoes, onions, and pulses, have fuelled a surge in inflation, impacting households' budgets and posing challenges for the economy. Experts analyse the trajectory of inflation and discuss the implications for people's financial stability
Tomatoes at Rs. 180 per kg, ginger at Rs. 600 per kg, the common man's curry is facing the onslaught of inflation.
Irrespective of what the annual and/or monthly inflation numbers might come, every family is facing the wrath of high vegetable prices.
The lingering question is what can we expect going ahead and how this will Also, impact your household budget?
High Food Inflation
In June 2023, food inflation increased to 4.6 per cent year-on-year (y-o-y) compared to 3.3 per cent y-o-y in May.
On a seasonally adjusted sequential basis, food prices rose by 1.5 per cent month-on-month (m-o-m) in June 2023, primarily driven by higher prices of vegetables, especially tomatoes and onions, among others.
Pulses, meat and fish also experienced price rise of 3.4 per cent and 2.5 per cent, respectively on a monthly basis.
However, the prices of oil and fat declined by 3.0 per cent sequentially in June.
Incidentally, inflation in fuel prices decelerated to 3.9 per cent y-o-y in June, compared to 4.7 per cent y-o-y in May, mainly due to the base effect, according to the India Economic Comment report by UBS Bank.
The Outlook
Owing to the steep rise in tomato prices, the government has stepped in by way of procuring them from mandis in Andhra Pradesh, Karnataka, and Maharashtra for simultaneous distribution in major consumption centres where retail prices have recorded the maximum increase in the last one month.
Tomato, which has a weight of 0.57 per cent in the consumer price index (CPI) basket is expected to ease the build-up in inflation by the end of Q2FY 2024. As for June 2023 alone, tomato added approximately 25 basis points (bps) to headline inflation.
Says Achala Jethmalani, Economist, RBL Bank: “With the first two weeks of July seeing tomato prices spiral up further, the July-August prints are seen to edge higher too. As per our initial estimates, the average CPI inflation is likely to be higher at 5.2-5.5 per cent levels vs 5 per cent assumed earlier owing to higher food inflation, mainly due to vegetables, pulses, meat, fish, eggs, milk, and cereal prices.”
She adds: “Adding to these output-related price woes is the uncertainty over weather, especially the uneven spatial distribution of rainfall across the key agrarian districts. This has sown the seeds of doubt about the pace of (dis) inflation that is being factored in for FY24.”
How To Mitigate The Impact?
Here is how rising food prices can affect your budget and how you can mitigate the impact.
Increased Grocery Expenses: With rising food prices, households may experience an increase in their monthly grocery bills.
Essential items like onions, tomatoes, and potatoes are staple ingredients in Indian cuisine, and their price hikes can directly impact the cost of preparing meals.
“This may necessitate adjustments to household budgets and potentially require individuals to allocate more funds toward meeting their basic food needs,” says AK Narayan, CEO, AK Narayan Associates, a financial planning firm.
Reduced Disposable Income: When a significant portion of the monthly budget is allocated to essential expenses, such as food, there is less disposable income available for other discretionary spending.
“As a result, individuals may need to cut back on non-essential items, such as entertainment, dining out, or leisure activities. This shift in spending patterns can affect overall lifestyle choices and may require individuals to prioritise their expenditures,” says Narayan.
Impact On Savings And Investments: Inflation can erode the purchasing power of savings and investments over time.
So, If the rate of inflation surpasses the rate of return on investments, the real value of savings may decline, says Narayan.
“Therefore, it becomes crucial for individuals to reassess their investment strategies, considering options that provide a higher return on investment to counter the impact of inflation,” he says.
Engaging with a financial advisor can help in identifying suitable investment avenues that offer a hedge against rising prices.
Says Renu Maheshwari, a Sebi-registered investment advisor and CEO, and principal advisor, Finzscholarz Wealth Manager: “Do not let it affect your savings and investment. Short-term fluctuations can cause permanent damage only if you let them.”
Importance Of Budgeting And Financial Planning
According to Narayan, budgeting, and financial planning become even more crucial during times of infaltion.
This, creating a detailed budget that accounts for increased food prices can help individuals gain better control over their finances, he says.
He says this would allow them to track their expenses, identify areas where savings can be made, and make informed decisions about spending priorities.
Developing a robust financial plan with clear goals and strategies can help individuals navigate through inflationary periods effectively.
Adds Maheshwari: “Every family should have a budget (annual and monthly). This budget should be segmented into discretionary and non-discretionary expenses with an allowance for variability. 10 per cent to 15 per cent variation falls within tolerable limits.”