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Why India food prices will remain high

Why India food prices will remain high

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Why India food prices will remain high

 Food inflation in India, driven by supply-side factors like adverse weather affecting crops, has remained at around 8 per cent year-on-year since November 2023 and is unlikely to ease any time soon, despite early arrival of monsoon rains and forecasts of above-normal rainfall.

Elevated prices of food, which accounts for nearly half of the overall consumer price basket, has kept headline inflation above the central bank’s target of 4pc, preventing it from cutting Indian interest rates.

WHAT IS DRIVING FOOD INFLATION HIGHER?

A drought last year and an ongoing heatwave have significantly reduced the supplies of foods like pulses, vegetables, and cereals.

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Curbs on food exports and reducing tariffs on imports have had little effect.

Although vegetable supplies generally decrease during the summer months, this year’s decline is much more pronounced.

Read more: Triple digit Argentina inflation means reduced beef consumption

Temperatures in nearly half of the country are soaring 4-9 degrees Celsius above normal, spoiling harvested and stored vegetables and hindering the planting of crops such as onions, tomatoes, eggplant and spinach.

Indian farmers usually prepare vegetable seedlings before the June-September monsoon rains and transplant them to the main fields afterward. However, this year, the excessive heat and water scarcity have disrupted both seedling planting and replanting, further exacerbating the shortage of vegetables.

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WHY HAS THE MONSOON NOT HELPED?

The annual monsoon, on which India’s agricultural output is dependent, arrived early in the southern tip of the country and advanced swiftly to cover the western state of Maharashtra ahead of schedule. However, this initial momentum soon waned, resulting in a 18pc rainfall deficit so far this season.

Besides triggering the heatwave, the weakened monsoon has delayed the planting of summer-sown crops, which can only proceed at full pace with sufficient rainfall.
Despite June’s patchy rains, India’s weather office has forecast above average rainfall for the rest of the monsoon season.

WHEN WILL PRICES COME DOWN?

Vegetable prices are expected to fall from August onwards if the monsoon revives and covers the entire country as per the usual schedule. However, floods or a prolonged dry spell in July and August could disrupt the production cycle.

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Prices of milk, cereals and pulses are unlikely to decrease soon due to tight supplies. Wheat supplies are dwindling, and the government has announced no plans to import grain, which will allow wheat prices to rise further.

Rice prices may increase as the government on Wednesday raised the minimum support price, or buying price, of paddy rice by 5.4pc. Supplies of pulses, such as pigeon peas, black matpe and chickpeas, were severely affected by last year’s drought, and will not improve until the new season crops are harvested.

Sugar prices are likely to remain high as next season’s production is expected to fall due to lower planting.

CAN GOVERNMENT INTERVENTION HELP?

Yes, government interventions such as restricting exports and easing imports can help bring down the prices of some food commodities. However, the government can do little when it comes to prices of vegetables, which are highly perishable and difficult to import.

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The government has implemented various measures to bring down food prices by restricting exports of sugar, rice, onions and wheat. However, these measures have proved unpopular among farmers, and led to losses in the general election for the ruling Bharatiya Janata Party in rural areas.

State elections are approaching in Maharashtra and Haryana, where a significant farmer population will decide the outcome.

The central government has been trying to win back farmers’ support and may allow prices of some crops to rise instead of taking aggressive measures before the elections, which are due in October. 

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Oil market likely to be in surplus next year, Morgan Stanley says

Oil market likely to be in surplus next year, Morgan Stanley says

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Oil market likely to be in surplus next year, Morgan Stanley says

The crude oil market is currently tight but next year will likely be in surplus, with Brent prices declining into the mid-to-high $70s range, Morgan Stanley said.

The tightness will hold for most of the third quarter, the bank said in a note dated on Friday, but equilibrium will return by the fourth quarter, “when seasonal demand tailwinds abate and both OPEC and non-OPEC supply return to growth.”

Three sources told Reuters last week that OPEC+ is unlikely to recommend changing the group’s output policy at a mini-ministerial meeting next month, leaving in place a plan to start unwinding one layer of oil output cuts from October.

Morgan Stanley said it expects OPEC and non-OPEC supply to grow by about 2.5 million barrels per day (bpd) in 2025, well ahead of demand growth.

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Refinery runs are set to reach a peak in August this year, and unlikely to return to that level until July 2025, it said.

Morgan Stanley left its forecast for Brent crude prices for the third quarter of 2024 unchanged at $86 per barrel. Earlier this month, Goldman Sachs also maintained its projection for the quarter at an average Brent price of $86 a barrel.

Brent crude prices on Monday were up 0.54% at $83.08 a barrel by 0535 GMT, and US West Texas Intermediate crude futures were up 0.54% at $80.56. 

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Asia stocks skid as China trims rates; Biden steps aside

Asia stocks skid as China trims rates; Biden steps aside

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Asia stocks skid as China trims rates; Biden steps aside

Asian shares slid anew on Monday, getting little lift from a surprise rate cut by China’s central bank, while Wall Street futures firmed in the wake of President Joe Biden’s decision to bow out of the election race.

The People’s Bank of China cut short-term rates by 10 basis points, which pulled down long-term borrowing costs and bond yields. The move follows Beijing’s release of a policy document on Sunday outlining its ambitions for the economy.

Investors seemed underwhelmed with the move, in part as it only emphasised how weak the economy was, and Chinese blue chips slipped 0.9% along with the yuan.

“Basically all the fundamental factors point to the fact that China needs a lower rate environment, especially the real rate is really high…in this kind of disinflationary environment,” said Gary Ng, Asia-Pacific senior economist at Natixis in Hong Kong.

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“I think the general trend is that it’s pretty much in line with the fact that the economy is not that great, and it seems that there’s a bit of urgency from the authorities to stimulate it now.”

MSCI’s broadest index of Asia-Pacific shares outside Japan lost another 0.7%, having shed 3% last week.

Japan’s Nikkei dropped 1.2% and South Korea’s benchmark index fell 1.3%. Taiwan was having another tough session with a loss of 2.3% amid concerns about US restrictions on chip sales.

Investors seemed much better prepared for news President Biden would drop out of the election race and endorse Vice President Kamala Harris for the Democratic ticket.

Online betting site PredictIT showed pricing for a victory by Donald Trump had fallen 4 cents to 60 cents, while Harris climbed 12 cents to 39 cents. California governor Gavin Newsom, another possible Democratic challenger, trailed at 4 cents.

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Markets took the news in their stride, with S&P 500 stock futures nudging up 0.1%, while Nasdaq futures added 0.2%. Futures for 10-year Treasuries rose 2 ticks, while 10-year bond yields dipped 2 basis point to 4.22%.

EUROSTOXX 50 futures added 0.5%, while FTSE futures firmed 0.4%.

“As Trump’s polling results have lifted, markets have favoured positions that anticipate more trade barriers and possibly higher inflation,” ANZ analysts said.

“Some polls have Harris performing better than Biden against Trump, and the Democrats will be hoping the next polls feature a Harris-driven bump.”

EYE ON EARNINGS

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A packed week of corporate earnings will see Tesla and Google-parent Alphabet kick off the season for the “Magnificent Seven” megacap group of stocks.

Others reporting include General Electric, General Motors, Ford and Lockheed Martin.

The tech sector is projected to increase year-over-year earnings by 17%, while profit for the communication services sector is seen rising about 22%.

Such gains would outpace the 11% estimated rise for the S&P 500 overall, according to LSEG IBES.

Europe’s biggest banks also report this week, with eyes on whether the gains from higher interest rates have run out of steam and if recent political drama is weighing on sentiment.

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A busy week for economic news will culminate with the Federal Reserve’s favoured inflation measure out on Friday. The core personal consumption expenditures index is seen rising 0.1% in June, pulling the annual pace down a tick to 2.5%.

Markets are wagering heavily that a benign outcome will firm the case for a September rate cut, which futures are pricing as a 97% chance.

Also due are figures for advance gross domestic product that are forecast to show growth picking up to an annualised 1.9% in the second quarter, from 1.4% in the first.

The closely watched Atlanta Fed GDPNow indicator points to growth of 2.7%, suggesting some risk to the upside.

The Bank of Canada meets on Wednesday and is considered almost certain to cut its rates by a quarter point to 4.5%.

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In currency markets, the dollar gave back just a little of last week’s safe haven gains as the euro edged up 0.1% to $1.0886. The dollar was a fraction softer on the Japanese yen at 157.27.

In commodity markets, gold held at $2,406 an ounce and short of last week’s record high of $2,483.60.

Oil prices inched higher, with scant sign of progress on a ceasefire deal in Gaza as Israeli forces battled Palestinian fighters in the southern city of Rafah on Sunday.

Brent gained 44 cents to $83.07 a barrel, while US crude rose 41 cents to $80.54 per barrel.

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FinMin Aurangzeb set to visit China to reschedule $15 loans

FinMin Aurangzeb set to visit China to reschedule $15 loans

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FinMin Aurangzeb set to visit China to reschedule $15 loans

 In order to reschedul energy loans worth $15 billion, Finance Minister Muhammad Aurangzeb is all set to visit China for three days tomorrow.

The minister will discuss the loan rescheduling with the Chinese authorities. The minister will also discuss China’s energy circular debts worth Rs500 billion.

Read more: Finance Minister Aurangzeb leads delegation to US for IMF talks on new bailout package

The minister will also discuss Panda Bonds during the visit to get the $30 million bonds in China.

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