Tomato, Onion Prices: Why Vegetable Prices Will Influence RBI's Rates Decision In August Policy?

Tomatoes prices have skyrocketed in many parts of India, and the prices of onions are also following a similar trend. Tomato prices have not just hit your pockets but are also acting as a spoilsport for economic growth. And the latest inflation print has taken a hit due to these hikes in prices, and more impact is in the offing. The consumer price index (CPI) in July is expected to come to around 5.5% due to a spurt in prices of vegetables, milk, cereals and pulses. Hence, this is likely to influence RBI's decision on Thursday for August 2023 monetary policy.

On Tuesday, the wholesale price of tomato is Rs 150 per kg, while the retail price is Rs 173 - 191 per kg, and the prices in shopping malls range from Rs 180 to Rs 248 per kg, as per the Vegetable Market Price.

Onion prices range from Rs 28 to 46 per kg in big, and from Rs 50 to Rs 83 per kg in small.

In the national capital, Delhi, tomato prices ranged from Rs 147 to Rs 243, varying from wholesale to retail prices. While big onion was available at Rs 31 to Rs 52, and the small onion around Rs 53 to Rs 87 per kg.

The latest report of Roti Rice Rate by CRISIL said that "The cost of a thali rose sequentially for the third month in a row in July, and also inched up on-year for the first time this fiscal, mainly due to soaring tomato prices."

The cost of vegetarian and nonvegetarian thalis rose 34% and 13% respectively in July on a month-on-month basis. CRISIL's note explained further in detail how the spike in tomato prices has impacted the average cost of preparing a thali at home. Here are the key highlights:

- Of the 34% rise in the cost of a vegetarian thali, 25% can be attributed solely to the price of tomato, which rose 233% on-month to Rs 110/kg in July from Rs 33/kg in June

- The prices of onion and potato increased by 16% and 9% on-month, respectively, contributing further to the increase in cost.

- While the cost of a non-vegetarian thali rose at a slower pace as the price of broilers, comprising more than 50% of the cost, likely declined 3-5% on-month in July.

Due to a surge in food prices, CPI Inflation accelerated for the first time in five months to 4.81% in June 2023 --- higher than market expectations. Food inflation zoomed to 4.99% from the previous month's print of 2.91%.

For July 2023, Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "CPI inflation rose to 4.81 % in June and is likely to rise to around 5.5% in July mainly due to spurt in prices of vegetables, milk, cereals and pulses. The single biggest contributor is the spurt in the price of tomatoes from Rs 26 per kg to around Rs 150 per kg now. Food items account for 46% weightage in CPI and within this vegetables have 6% weightage. Flooding and unseasonal rains damaged crops and caused rise in prices of many food items. Cereal and pulses prices will continue to face pressure for some more time."

He added, "Vegetable price rise is seasonal and will come down soon. But price rise in cereals can last longer since global prices influence the domestic prices." Also, inadequate sowing in the North West and insufficient rain in the South and East are likely to impact the rice harvest.

Globally, he added, "wheat prices have gone up after Russia withdrew from the Black Sea grain deal. Regarding pulses, due to unseasonal rains, many farmers have switched to other crops from pulses. This will impact supply and push up prices. Difficult to predict the degree of price rise."

Thereby, Vijayakumar believes that MPC will be concerned about the high vegetable inflation prevailing now. But since this is due to seasonal factors monetary policy cannot do anything about it. More importantly, there is strong growth momentum in the economy now and the MPC is unlikely to do anything that upsets the growth apple cart. So, the rates and stance are likely to remain unchanged.

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