Onion prices in India have surged 52% year-on-year (YoY), keeping the country’s food inflation high in November 2024. While some relief has been observed in other vegetable prices, which have dropped by 4.1% month-on-month (MoM), onion prices remain elevated, continuing to contribute significantly to India's inflationary pressures. According to a report from ICICI Bank, lower mandi arrivals are driving the higher prices of vegetables, with onion prices expected to continue putting upward pressure on food inflation.

The surge in onion prices comes on the back of a weather-related supply disruption caused by heavy rains in August and September 2024, which significantly affected supply chains for several essential vegetables. The ICICI Bank report noted that this led to a 28% drop in mandi arrivals, which in turn, pushed tomato prices up by 49% MoM in October. While tomato prices have shown a decline in November, onion prices remain high with no immediate relief in sight.

This spike in onion prices is part of a broader trend of rising vegetable inflation, which also saw significant price hikes for key vegetables like tomatoes (up 161% YoY) and potatoes (up 65% YoY) in October 2024. The price increase in these vegetables pushed vegetable inflation to a 57-month high, marking an 8.2% increase MoM in October, following a 3.5% rise in September.

Despite some deceleration in vegetable prices in November, India’s food inflation continues to face significant challenges. Retail inflation reached a 14-month high of 6.21% YoY in October, with food inflation specifically rising to 10.87%. The price pressures on essential food items such as vegetables, fruits, and oils are having a profound effect on the economy, particularly by reducing the purchasing power of middle-income households.

The National Statistics Office (NSO) highlighted a decline in inflation in some food items like pulses, sugar, and spices, but noted the persistent challenges posed by rising prices of vegetables and fruits. While the inflation rate in vegetables has slowed slightly, it remains one of the most significant contributors to the overall rise in food prices.

As India continues to battle high food inflation, policymakers are facing an uphill struggle to contain it, with domestic factors, external headwinds, and geopolitical conflicts complicating efforts to bring down inflation rates. The ICICI Bank report also underscored that weather disruptions remain a critical factor impacting both supply chains and inflation, posing a challenge to India’s economic stability in the short term.

These price increases are not just a concern for consumers but also for businesses, as rising food costs are starting to hurt corporate earnings and economic growth in Asia's third-largest economy. With high vegetable prices remaining a core inflation driver, experts warn that unless there are improvements in supply chain resilience and agricultural productivity, the price pressures on essential goods like onions and tomatoes may persist, impacting the broader economy.

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