2023-07-06 17:33:46
KOLKATA: The recent rise in tomato prices across India might contribute to the headline inflation, according to a study by the Reserve Bank of India’s development research group, which suggested better supply management to ensure price stability.
Despite making up a small portion of the Consumer Price Index Combined (CPI-C) basket, tomato, onion, and potato are major contributors to the volatility of headline inflation, the group said.
Tomato prices have recently spiked across the country even as prices of onion and potato remained stable.
“Given the perishable nature, limited substitutability, and increased susceptibility to supply shocks, vegetable prices have historically tended to be highly volatile imparting volatility to the overall inflation,” they stated.
Investigating how volatility transmission took place in daily prices of tomato, potato and onion for the period from January 2011 to March 2021, the group said that fluctuation of the prices are generally due to common supply shocks which includes unseasonal rains to un-scrupulous hoarding of the commodity.
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“As volatility in vegetable prices is driven by recurrent supply shocks, supply management measures by the government, such as strengthening the supply chain, placing stock holding limits on traders, wholesalers and retailers, developing cold storages, reducing post-harvest losses and integrating all
the participants in the value chain can help in ensuring domestic availability and stable prices,” they said in the study named `Anatomy of Price Volatility Transmission in Indian Vegetables Markets’.
It was done by Puja Padhi, an associate professor in Indian Institute of Technology, Bombay, and Himani Shekhar and Akanksha Handa, managers in RBI’s Department of Economic and Policy Research.
RBI formed the Development Research Group in the department. RBI said the views expressed in the study are of the authors.
“The findings of the study hold implications for the management of overall
inflation. Given the objective of price stability of the central bank, it becomes imperative to not just anchor inflation within targeted levels but also sustain inflation at those levels,” the authors said. “This would require curtailing the primary sources of volatility.”
Volatility in the key vegetable prices may generally be high due to their high perishability and vulnerability to weather-related disturbances on the back of relatively less elastic demand as these are key vegetables for Indian households, they added.
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