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Climate and food price rise: Extreme weather events triggering unprecedented food inflation
At 14.23 per cent, India’s wholesale inflation rate in November 2021 was the highest in three decades. It did reduce marginally to 13.56 per cent the next month, according to government data released January 14, 2022. But even that is bad news for the Centre ahead of Assembly elections in five states, including politically significant Uttar Pradesh.
Wholesale price index (WPI) inflation is always a cause of concern as it can raise retail inflation. What’s worse, the price rise has been continuous — December 2021 was the ninth straight month of double-digit percentage increases in the WPI. Experts predict the situation to remain the same through the end of this financial year (March 30, 2022).
High December inflation was unexpected: The government had reduced taxes on fuels — a major add-on to overall inflation. So, why does inflation remain high?
As it emerges, food inflation — particularly the rise in prices of vegetables and a few grains — has been a driver of this episode of overall inflation. India’s wholesale price inflation peaked in November 2021 due to a surge in primary food inflation that hit a 13-month high.
Prices of seasonal vegetables jumped unprecedentedly in many states. And this was due to extreme weather events; and this trend is not limited to India.
Food inflation is rising across the world. On January 7, 2022, the Food and Agricultural Organisation’s (FAO’s) Food Price Index showed that food prices were at a decade-high, with an average rise of 28 percent over the previous year. Adjusting for inflation, the average food prices in the first 11 months of 2021 were at the highest in 46 years.
Abdol Reza Abbassian, senior economist with FAO, attributes the current food price rise primarily to climatic conditions. “While normally high prices are expected to give way to increased production, the high cost of inputs, ongoing global pandemic and ever more uncertain climatic conditions leave little room for optimism about a return to more stable market conditions even in 2022,” Abbassian said.
Between 1956 and 2010, there were nine double-digit inflation episodes. Of these, seven were caused by drought conditions, according to the Reserve Bank of India (RBI). In the past six decades, there have been three major episodes of significantly high food prices globally: 1970s, 2007-08 and 2010-14. All these were triggered by weather shocks followed by factors such as increase in oil prices, trade policy interventions and biofuel consumption. The current episode seems to be entirely driven by weather anomalies.
A similar situation caused the last high-price episode in 2019-2020. Rising prices of food items, particularly of vegetables, caused retail inflation to rise to a 68-month high of 7.59 per cent in January 2020.
Warming world, hotter prices
While the inflation figure captured headlines, a crucial analysis of the reasons behind this sustained increase in food prices slipped public attention. Extreme weather events had damaged crops, leading to a collapse of the supply of vegetables at a time of the year when they usually flood the markets.
On the basis of year-on-year comparison, vegetable prices had gone up by 50.19 percent since January 2019. They increased by 45.56 per cent in rural areas and markets during this period and by 59.31 percent in urban areas.
Of the six categories of consumption items used in tabulating the overall inflation figure, food and beverages recorded the highest price rise, thus increasing the overall inflation rate. In 2014, when inflation was an emotive political agenda, RBI pointed out:
One of the traditional explanations for rising food prices has been the supply-side shocks related to weather either because of droughts or floods.
The current global food inflation is driven predominantly by wheat, which reported price rise due to drought and high temperature in major producing countries. In 2021, as various trade reports show, spring wheat production declined by 40 percent in the United States. Russia, the world’s largest exporter of wheat, also harvested less and has now imposed a tax on wheat export to ensure ample stock for domestic consumption. Unusual frosts in Brazil’s coffee bean producing areas in July 2021 have led to a production dip of up to 10 percent.
News
Courtesy call by the Heads of Mission- Designate on Prime Minister
The heads of mission designate to Sri Lanka paid a courtesy call on Prime Minister Dr. Harini Amarasuriya on 26th of March at the Prime Minister’s office.
The delegation comprised Dharshana M. Perera, High Commissioner – designate of Sri Lanka to Malaysia, Ms. Dayani Mendis, Ambassador and PRUN – designate of Sri Lanka to Austria, Ms. N.I.D. Paranavitana, Ambassador – designate of Sri Lanka to Ethiopia & African Union, Prof. (Ms.) M.I. Fazeeha Azmi,Ambassador – designate of Sri Lanka to Iran, Saman Kumara Chandrasiri, Ambassador – designate of Sri Lanka to Israel, and M. Farook M. Fawzer, Representative – designate of Sri Lanka to Palestine.
The Prime Minister, Dr. Harini Amarasuriya, extended her best wishes to the Heads of Mission–designate and underscored the importance of their forthcoming assignments in advancing Sri Lanka’s national interests emphasizing their collective role in contributing towards the socio-economic upliftment of Sri Lanka.
The Prime Minister further highlighted the importance of projecting a positive and credible image of Sri Lanka internationally, through consistent, professional, and strategic engagement in their respective host countries and multilateral platforms.
She encouraged the Heads of Mission to actively identify and facilitate high-quality investment opportunities, particularly in sectors aligned with Sri Lanka’s development priorities, with a focus on sustainability, innovation, and long-term value addition.
Particular emphasis was placed on the promotion and diversification of Sri Lanka’s exports, including the exploration of new markets and strengthening trade linkages.
The meeting was attended by the Secretary to the Prime Minister, Additional Secretary to the Prime Minister Ms. Sagarika Bogahawatta and heads of mission-designate.
[Prime Minister’s Media Division]
News
SC finds Keheliya, others, guilty of violating FRs of public through corrupt drug procurement deal
The Supreme Court yesterday held former Health Minister Keheliya Rambukwella and several senior health officials liable for violating the fundamental rights of the public over a controversial drug procurement carried out under the 2022 Indian Credit Line.
Delivering the judgment, a three-judge bench, headed by Chief Justice Preethi Padman Surasena, and comprising Justice Kumudini Wickremasinghe and Justice Janak de Silva, found that the procurement of medical supplies from an unregistered company, in breach of established procedures, had resulted in a serious infringement of public rights.
The Court ruled that the granting of a Waiver of Registration by the authorities was “wrongful, arbitrary and capricious,” and held that the direct procurement carried out on an unsolicited basis was unlawful. The transaction was accordingly declared null and void.
In a significant order, the Court directed Rambukwella to pay Rs. 75 million in compensation to the State from his personal funds.
The then Health Ministry Secretary Janaka Chandragupta and former Chairman of the National Medicines Regulatory Authority (NMRA), Prof. S. D. Jayaratne, were each ordered to pay Rs. 50 million.
The Court further directed NMRA Chief Executive Officer Dr. Wijith Gunasekara and former Director of the Medical Supplies Division Dr. Thusitha Sudarshana to pay Rs. 50 million each as compensation.
The ruling followed the hearing of a fundamental rights petition filed by Transparency International Sri Lanka and two other parties.
The Court also instructed the Commission to Investigate Allegations of Bribery or Corruption to initiate appropriate action under the Anti-Corruption Act against those found responsible.
Senior Counsel Senany Dayaratne, with Nishadi Wickramasinghe, Lasanthika Hettiarachchi, Janani Abeywickrema and Maheshika Bandara, appeared for the petitioners.
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Sajith nudges govt. to follow India’s example in giving relief to consumers by slashing taxes on fuel
Opposition and SJB Leader Sajith Premadasa yesterday urged President Anura Kumara Dissanayake to reduce taxes on fuel, just as the Indian government has done.
He said in a post on X that “Modi government has decided to reduce the Special Additional Excise Duty on petrol and completely remove it for diesel in order to cushion the hardship on the Indian consumer. High time for Anura Kumara Dissanayake to keep up to his election promise and follow suit.”
Meanwhile foreign media reported that India has slashed excise duties on petrol and diesel to protect consumers and rein in a potential spike in inflation, while imposing windfall taxes on aviation fuel and diesel exports, amid volatile global oil markets, as a result of the Iran war.
Global oil prices have surged past $100 per barrel after the near closure of the Strait of Hormuz, which serves as a conduit for 40% of India’s crude oil imports, since the US and Israel first struck Iran on February 28.
In a government order, released late on Thursday, India’s Finance Ministry reduced the special excise duty on petrol to three Indian rupees ($0.0318) per litre from 13 Indian rupees earlier. It also cut the duty on diesel to zero from INR 10 rupees per litre.
The government did not say how much the duty cuts would cost. The move comes ahead of elections next month in four Indian states and one federal territory, with Indian voters known to be extremely sensitive to higher prices.
“Government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies, approximately 24 rupees a litre for petrol and 30 rupees a litre for diesel, at this time of sky high international prices, are reduced,” Indian Oil Minister Hardeep Singh Puri said in a post on X.
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