Onion Prices On The Rise: ICICI Bank Report Says Vegetable Prices Contributing To Inflation Rise; WHY?

Onion prices continue to be a major concern for consumers in India, as they remain elevated in November, adding to the country's inflationary pressures, despite a broader dip in vegetable prices. A recent report by ICICI Bank highlighted that while vegetable prices as a whole have eased by 4.1% month-on-month (MoM) in November so far, onion prices are still stubbornly high, continuing to contribute to the country's inflation woes.

The report pointed out that although some relief has been observed in vegetable prices this month, onion prices have not followed the same downward trajectory. The high cost of onions, along with other essential vegetables like tomatoes and potatoes, has kept the overall food inflation elevated. Despite the monthly dip in vegetable prices, the annual picture remains troubling, with vegetable prices still hovering at a 57-month peak. Year-on-year, vegetable prices have surged by 42% as of October.

This surge is largely driven by price hikes in key vegetables. Tomatoes have seen an eye-watering 161% increase in prices year-on-year, while potatoes and onions have seen price hikes of 65% and 52%, respectively. The sharp increase in prices is a result of multiple factors, with adverse weather conditions playing a pivotal role. Heavy rains during the monsoon months of August and September disrupted supply chains, leading to a drastic 28% drop in mandi arrivals. This supply shortage was particularly detrimental to tomato prices, which jumped 49% MoM in October alone.

While there has been some deceleration in vegetable prices in November, the high cost of onions continues to put pressure on both consumers and India's inflation rate. As a result, retail inflation in India rose to a 14-month high of 6.21% year-on-year in October, driven by the surge in food prices. Core inflation, which excludes food and energy prices, also inched up to 3.7% in October, from 3.5% in September.

Within the food sector, vegetables remain a major contributor to inflation. After an 8.2% MoM rise in October, following a 3.5% MoM increase in September, vegetable prices are showing a clear trend of sequential price hikes. This pattern highlights the outsized impact that the vegetable price surge is having on overall food inflation. The ICICI Bank report reflects on how these price trends, driven mainly by weather disruptions and logistical challenges, will continue to be a key factor in shaping India's economic outlook in the near term.

Despite the occasional dips in prices, the ongoing high prices of essential vegetables like onions, tomatoes, and potatoes remain a major concern for policymakers. They continue to affect not only household budgets but also contribute to broader inflationary pressures that are complicating the economic recovery.

*Inputs from Economic Times*