TOMATO INFLATION

 “If we compare with last year’s prices, tomato’s average rate is the same,” he said.

But quite interestingly, if one looks at the inflation rate in tomato prices, it is negative. In other words, the inflation rate suggests that tomato prices are crashing.

Look at CHART 1 sourced from CMIE. It shows the year-on-year inflation rate in tomato prices.

TOMATO CHART1 CHART 1 (Source: CMIE)

It shows that Tomato prices fell by a whopping 35% in June (as against the prices in June 2022). In fact, tomato prices have been experiencing “deflation” (the opposite of inflation) since November 2022.

Perhaps the picture might change when the data for July comes next month, but as things stand, one can argue both ways. How can tomato prices be sky-high and crashing at the same time?

Why is the inflation rate negative?

Inflation rate is based on the value of an index. For each commodity there is an index, which works like a proxy of the market prices. Since market prices can vary depending on where one looks, it is always better to go with the value of a pre-decided index.

Further, inflation rate is calculated on a year-on-year basis in India. That means the June inflation rate of a commodity will look at the index value for June 2023 and compare it with the value of the index in June 2022.

CHART 2 shows the index value of tomato prices.

TOMATO CHART2 CHART 2 (Source: CMIE)

It shows that while the index value has run up quite significantly in June (it is at 191), this value is much lower in comparison to the index value in June 2022 (when it was 293). To be precise, it is 35% lower than the June 2022 index value.

Does that mean India doesn’t have a problem when it comes to tomato prices?

No. India does have a problem with tomato prices and what is worse is that it strikes consumers each year like clockwork.

Each year the government’s response is the same: That this is a temporary problem and that prices will come down when supply improves.

This time too the response is the similar:

“Tomato is the only commodity whose price has increased during the week. We all know that due to unseasonal rains, the prices of tomatoes have increased and as soon as tomatoes start arriving from Himachal Pradesh and some places of Karnataka, the prices will go down,” Goyal told ANI.

There are many things that can be done to avoid such spikes. Most important among them is to boost India’s ability to store its produce. 

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