The Reserve Bank of India's (RBI) Development Research Group has warned that soaring tomato prices could jeopardize the headline inflation forecast. The study, which was released on July 6, 2023, found that tomato, onion, and potato are major contributors to the volatility of headline inflation, despite making up only a small portion of the Consumer Price Index Combined (CPI-C) basket.
The study found that tomato prices have been rising sharply in recent months, due to a combination of factors, including a decline in production, an increase in demand, and disruptions to supply chains. As a result, tomato prices have risen by more than 100% in some parts of the country.
The study warned that the rise in tomato prices could have a significant impact on headline inflation, which is already at a two-year high. The RBI has forecast that headline inflation will average 6.7% in the current financial year. However, the study found that if tomato prices continue to rise, headline inflation could exceed the RBI's forecast.
The study recommended that the government take steps to improve supply-chain management for tomatoes, in order to ensure price stability. The study also recommended that the government provide subsidies to farmers, in order to encourage them to increase production.
The rise in tomato prices is a reminder of the importance of food inflation in India. Food inflation is a major driver of headline inflation, and it can have a significant impact on the welfare of low-income households. The government needs to take steps to ensure that food prices remain stable, in order to protect the poor from the effects of inflation.
Here are some additional details from the study:
Tomato prices have been rising sharply since the beginning of the year. In June 2023, the average price of tomatoes was 120 rupees per kilogram, up from 60 rupees per kilogram in January 2023.
The rise in tomato prices has been most pronounced in the northern and western states of India. In Delhi, for example, the average price of tomatoes has more than doubled since January 2023.
The rise in tomato prices is being driven by a combination of factors, including a decline in production, an increase in demand, and disruptions to supply chains.
The decline in production is due to a number of factors, including a late start to the monsoon season, a pest infestation, and a shortage of labor.
The increase in demand is due to the festival season, which is typically a time when demand for tomatoes increases.
The disruptions to supply chains are due to the COVID-19 pandemic, which has made it more difficult to transport tomatoes from production areas to markets.
The study's findings suggest that the government needs to take steps to address the rising cost of tomatoes. These steps could include providing subsidies to farmers, improving supply-chain management, and increasing imports.
