Those who say India's inflation woes are under control forgot to tell Mumbai's onion thieves. Prices of the vegetable — a staple in Indian diets — have almost doubled since July, leading to a series of widely-reported heists in recent weeks. One victim, Anand Naik, had 750kg of onions snatched from underneath a tarp by his roadside stall in Mumbai last month.
The rising likelihood of a rate cut in the coming months would do nothing to lower household inflation expectations, which central bank Governor Raghuram Rajan flagged as a crucial part of his long-term fight to control prices. Instilling expectations of lower prices among the population would help contain wage demands and allow interest rates to fall at a faster pace.
Years of 9-per-cent-plus price growth have left their mark on Indians, Rajan said last month.
Households expectations of where inflation will be in a year hit more than 10 percent in June from as low as 8.9 per cent in December, according to a central bank survey published Aug 4. That's even as CPI stayed below Rajan's January target of 6 per cent for 10 straight months.
Rajan wants all indicators to eventually converge around his inflation target, which will fall to 4 per cent in the coming years. To get there, he needs to eliminate large swings in the price of food, which accounts for almost half of the inflation basket, according to Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd.
Onions are a key ingredient in many Indian dishes, making prices a particularly sensitive political issue. A hundred kilos of onions cost an average 3,800 rupees (US$57) in the main Lasalgaon wholesale market in August, about double from a month earlier. Supplies dropped by about 70 per cent in that time, in part due to unseasonal rains.
With elections coming up in key states, Prime Minister Narendra Modi's government has rushed to boost imports, raise minimum export prices and crack down on hoarders who fuel speculation and exacerbate price moves.
In Mumbai, Naik estimates that it will take him six months to recover from the 38,000-rupee loss. To prevent further thefts, he asked his nephew to sleep on the street each night beside sacks of onions.
