Extreme Weather's Impact on Vegetable Prices and Inflation
Extreme weather events are not only affecting electricity bills but also pushing up vegetable prices, which have been a major contributor to retail inflation for over a year. A recent report by Crisil highlights how the rising intensity and frequency of weather disturbances have led to frequent fluctuations in vegetable prices in recent years.
The report emphasizes the need to mitigate the impact of climate risks on vegetable production and prices, as vegetables accounted for about 30% of food inflation in FY24, significantly higher than their 15.5% share in the food index. While rising prices of tomatoes and onions grabbed headlines, the price increase wasn't limited to these vegetables. Garlic and ginger, for instance, saw triple-digit inflation of 117.8% and 110.4%, respectively. Other vegetables like brinjal, parwal, and beans also experienced a spike in inflation.
Fiscal 2024 witnessed significant volatility, with vegetable prices ranging from a low of -7.9% in May 2023 to a high of 37.4% in July 2023. The report further notes that while the usual high volatility played out in FY24, other anomalies like warmer weather, uneven rains, and pest attacks pushed inflation higher.
These disturbances resulted in the vegetable price index not only missing its typical seasonal winter decline but also exceeding the seasonal uptick of the previous year. Consequently, average vegetable inflation surged higher in FY24.
With a weight of 6.04% in the consumer price index (CPI) based inflation basket, vegetables hold the third highest position in the food and beverages sub-group, after cereals (9.67%) and milk (6.61%). Overall, the food and beverages sub-group has the highest weight in CPI inflation at 45.86%.
In March, CPI inflation stood at 4.85%, while vegetable inflation was at 23.84%. This drove inflation in the food and beverages basket to 7.68%.
The Reserve Bank of India's monthly bulletin also highlighted the risk of extreme weather events and prolonged geopolitical tensions to inflation, potentially keeping crude oil prices volatile.
The World Meteorological Organisation (WMO) has sounded a red alert about global warming in its latest report, "State of the Global Climate 2023." The report states that there is a high probability that 2024 will surpass 2023 as the hottest year on record, even as the world faces a freshwater shortage crisis. According to the WMO report, data from the Indian Meteorological Department (IMD) reflects a worrying escalation in extreme weather events, necessitating an urgent and collective response.