Recent trends in the prices of protein items have left economy-watchers stumped. The past few months have seen the prices of pulses fall off a cliff after a long and unnerving run-up. Inflation in milk, too, has started losing steam. However, inflation in animal proteins remains high and sticky. Indeed, most of the pressure on protein inflation is now from surging prices of animal proteins. This, despite the fact that about 89% of the population consumes pulses at least once a week, while only 35% consumes animal protein! Let’s take a closer look at the changing dynamics in the food basket.
A monster on the loose
Food inflation has made headlines for nearly a decade now and barring a year or two when ample monsoons helped abate inflationary pressures, food inflation has been on a steady uptrend. Surging prices of fruits and vegetables, rice and animal protein (eggs/meat/fish) have been the primary drivers of inflation this year. With a weight of 79% in the food index, they have contributed 84% to food inflation so far this fiscal. Indeed, whereas food inflation has averaged over 13% so far this year, inflation in these three commodity categories has ruled over 15%.
As the accompanying table shows, prior to 2009-10, inflation was relatively low and mostly driven by higher prices of cereals (rice and wheat). But since then, there seems to be a clear shift in favour of protein-rich items—pulses, milk and animal protein. In fact, in three of the last four years that saw food inflation in double digits, protein inflation soared.
It is often argued that the big boost to protein inflation came during the period of consumption lift when a huge consumption-oriented stimulus (accompanied by the Sixth Pay Commission doles) was pumped into the economy. This led to rising incomes and greater affluence, which triggered a shift in the food consumption pattern from one heavy on cereals to one with more of proteins. The sudden surge in demand could not immediately be met, leading to a spurt in prices.
Since 2009-10, therefore, protein items have seen a steady and steep increase in prices, keeping their inflation mostly in double digits. In fact, long-term data suggests that protein inflation has structurally moved up. Protein inflation, which averaged around 5% in the 10 years ending 2008-09, jumped to over 15% between 2009-10 and 2012-13.
In recent months, though, prices have started softening again. Overall protein inflation has fallen