9 out of 20 commodities have registered some momentum in prices; BoB Essential Commodity Index increased at the fastest pace in Mar’24
Dipanwita Mazumdar
Economist,
Bank of Baroda
Mumbai, April 6, 2024: Economics Research Department of Bank of Baroda has come out with a report on BoB Essential Commodities Index for March 2024.
How prices look in Mar’24
BoB Essential Commodity Index (BoB ECI) has increased at the fastest pace since Aug’23 by 5.9% in Mar’24, on YoY basis and by 0.4%, on a sequential basis. On a seasonally adjusted basis, the increase is sharper at 0.8%. Much of this is attributable to rise in prices of vegetables such as Potato and Onion.
Apart from this, edible oils and pulses have also provided some bit of discomfort on food inflation.
Going forward, the wider gap between retail and wholesale prices of these vegetable items (potato
and onion) and estimated drop in production as per first AE of 2023-24 of Horticulture crops, could
pose some near term pressure on food inflation.
For Mar’24, we expect CPI to settle at 4.8%. Despite some bit of discomfort on food inflation, support
would prevail from a lower fuel price and a comforting core inflation.
To get an idea about the calculation of the index, refer to our previous edition of BoB ECI.
Price picture using BoB Essential Commodity Index:
On YoY basis, BoB ECI inched up to 5.9% in Mar’24, the sharpest pace of increase in the index
observed since Aug’23. This is higher compared to last month’s increase of 4.2% of the index.
9 out of 20 commodities have registered some momentum in prices. Vegetables such as
Potato and Onion prices have gained considerably. From 5.3% and 28.9% increase respectively
seen in Feb’24, it inched up to 22% and 40.1% in Mar’24 (on YoY basis). Other items where
price build up was visible were wheat (atta), edible oils such as sunflower oil, soya oil and
mustard oil. Some components of pulses such as Gram dal, Masoor and Urad also showed
some bit of upward correction.
On MoM basis, BoB ECI rose by 0.4% in Mar’24 from 0.2% decline seen in Feb’24. Notably, on
a sequential basis, BoB ECI has been on a path of increase for the first time since Dec’23. A
sequential momentum was seen in 13 out of 20 commodities. The YoY and sequential picture
broadly mirrored the same trend. On sequential basis as well, wheat, major components of
pulses, edible oils and most importantly Potato and Onion prices have shown pick up in
Mar’24 compared to Feb’24. On a seasonally adjusted basis, the increase in BoB ECI is sharper
at 0.8% in Mar’24.
For the first 4 days of Apr-24, BoB ECI has inched up further by 6.7%, on YoY basis. On MoM
basis, it has inched up by another 0.5%. The sequential pick up in prices was visible for edible
oils, sugar, milk. Amongst vegetables, tomato prices reversed their trajectory noting an
upward correction in Apr’24. Potato prices also increased moderately while Onion prices
moderated.
So where is CPI print headed?
High frequency price data showed that vegetable prices, especially potato and onion
continue to pose considerable upside risk to food inflation. Potato prices were impacted as
production was hampered due to unseasonal December rains. Added to this, there has been
considerable gap between wholesale and retail prices for Potato, Onion, and Tomato. The
significant difference is seen for Onion and Tomato. Thus, along with an upward correction
in trajectory which happens in Q1, we can expect considerable upside risk to the prices of these items on account of limited pass-through of wholesale to retail prices. Apart from this,
adverse weather conditions and fear of prolonged summer might again result in cost push
inflation. The only comfort comes from core. But how long is the question?
We expect headline CPI to be at 4.8% on Mar’24. Our FY25 forecast is in the range of 4.5-5%,
with risks tilted to the upside.
