Soaring tomato prices: RBI calls it a 'major concern', lists 5 facts about tomato inflation

Tomato prices have been soaring and have increased by more than 700% since January this year.

Given the extent of the increase in prices and the huge toll it has taken on household budgets, the Reserve Bank of India has now taken note of this issue in its new bulletin. RBI says that the spillover effect of the spike in the price of the kitchen staple on other commodities remains a "major concern".

In recent weeks, the price of tomatoes has soared to up to Rs 250 per kilogram, mainly due to crop damage.

RBI shares 'Five Facts About Tomato Prices'

1. Historically, tomato prices have been an important contributor to volatility in overall inflation. Its volatility also gets transmitted to prices of other vegetables in both retail and wholesale markets.

2. Tomato, being a highly perishable item with a very short crop duration, exhibits considerable seasonal variation in prices but these episodes are short lived.

3. While the yearly peaks have exhibited a general increase, the troughs have remained largely constant, indicating that prices do not ratchet up across spells.

4. Multiple crop cycles with varying time spans across locations lead to more than one spell of price spike within the same year.

5. Empirical estimates show that even though margins (the wedge between wholesale and retail prices) respond to shocks, their elasticity to wholesale prices is low – for a one per cent rise in wholesale prices, the wedge increases by 0.1 per cent. Thus margins act as a shock absorbing mechanism and, therefore, inflation in retail prices is less volatile than wholesale.

In recent weeks, the price of tomatoes has soared to up to Rs 250 per kilogram, mainly due to crop damage.

Meanwhile, the government has started selling tomatoes at subsidized rates at many locations, deploying mobile vans. The Centre is selling tomatoes at a subsidised rate of Rs 80 per kg in Delhi-NCR and some other cities through the National Cooperative Consumers' Federation of India (NCCF) and the National Agricultural Cooperative Marketing Federation of India (NAFED).