Those ingredients are taking a bigger bite out of household budgets. Food accounts for almost half of monthly spending for some rural families and nearly 40% in cities. Onions, a foundation of countless savory dishes, have risen almost 50% from a year earlier. Vegetable oil used for frying street snacks is also rising, and the ginger vital for flavor has surged more than 70%, the latest consumer price index for August shows.
Several factors are at play: The annual monsoon has been weaker than usual, leaving farms thirsty. A push to increase biofuel production for energy security diverting grain. Plus, wars in both Iran and Ukraine are boosting crop and fuel prices globally.
That’s made food — which comprises more than a third of the retail inflation basket — emerge as a key driver of the country’s inflation, with the broader rate in August nearing the top of the central bank’s target range. It could also offer a signal of what’s to come elsewhere, as many nations cope with the fallout of conflicts and extreme weather, exacerbated this year by El Niño.
“In a connected world, supply is not an issue, but there will be issues with prices,” said Madan Sabnavis, chief economist at Bank of Baroda.
The monsoon rains, which end this month, are one of the obvious signs of the issue. Precipitation since they started in June is running 15% below normal, and the weather office has forecast rains to remain subpar in September. The shortfall is linked to the El Niño weather phenomenon, which is known for spurring drier years in the country.
That could further dim the harvest outlook for crops from rice to soybeans, corn and sugar cane. Rice and corn plantings are running more than 3% behind last season, with little time left, and domestic sugar prices jolted higher in August on worries of a shortfall. That forced the government to allow a tranche of duty-free sugar imports, an unusual step in a country that ranks as the world’s second-largest producer.During years of deficient monsoons, every percentage point shortfall in rainfall versus normal equates to a roughly 25 basis point increase in food inflation, according to Yuvika Singhal, an economist at QuantEco.
BloombergMeanwhile, onion crops in key grower Maharashtra were damaged by unseasonable rains in March, reducing yields, according to Jaydatta Sitaram Holkar, a member of one of the state-run wholesale markets for farm commodities in the state.
Wholesale prices should start softening when the new crop arrives next month, but rising transport costs are also keeping retail rates high, Holkar said. Ginger supplies have also tightened ahead of the next harvest, although fresh supplies are expected in December and January, said V. Srinivasan, head of crop production and post-harvest technology at ICAR-Indian Institute of Spices Research.
Biofuel policy is playing a role, as well. The country pushed forward a 20% ethanol-blending target originally slated for 2030 to 2025, driving a nationwide expansion across thousands of fuel stations. The policy has increased demand for corn and rice as feedstocks alongside sugar cane.
That could further tighten domestic supplies for food and feed, with farmers likely to sell crops to ethanol makers first if it fetches them a higher price, Sabnavis said.
For Ajaz Azam Qureshi, a chicken and egg seller in Mumbai’s suburbs, feed prices for the live birds he buys daily have doubled in the last month. He has raised prices to 260 rupees ($2.74) a kilogram, from 240 rupees, even as the holy month of Shravan subdued demand for meat. But the rally could increase as the sacred period has just ended in Maharashtra, with Qureshi planning to raise prices to 300 rupees ($3.20).
Bloomberg“I have to protect my margin, but the price rise forces customers to cut consumption and there will be a slump in business,” Qureshi said. “If the feed prices do not come down, however, we will not be able to lower chicken prices.”
Key dairy items like paneer — a soft cheese — and milk are more expensive, too, Central Statistics Office data show.
Preparing food has also grown costlier. India faced shortages of liquefied petroleum gas relied on for cooking earlier this year due to conflict in the Middle East. Shivam Fauzdar, who runs a small restaurant in the New Delhi suburb of Noida, said he raised prices after the initial surge in LPG, but with ingredient costs now climbing, he’s struggling to raise menu prices further. The business competes with half a dozen nearby food carts that offer flatbreads with a serving of vegetables or lentils at lower prices.
“We can’t raise our rates because customers will stop coming,” he said.
The situation will be particularly in focus as India’s festive season gets underway around this time, culminating in Diwali — the Hindu festival of light — in November. The period is known for an uptick in food consumption, with sugar and cooking oil demand peaking as people consume more traditional sweets, fried food and other treats.
Food inflation has accelerated each month this year, and the rise will have ramifications for interest rates as the country’s central bank targets headline consumer price inflation, according to Sabnavis. Broader inflation accelerated in August to the highest since December 2024, exceeding the Reserve Bank of India’s 4% medium-term target for a third straight month.