Easing inflation anxiety about TOP (tomato, onion and potato) prices and cooling of non-food inflation has brought some relief at the end of the calendar year. But edgy vegetable prices, elevated foodgrain inflation and the now-recurring weather worries are keeping inflation concerns on the boil
Google search interest by consumers for prices of TOP (tomatoes, onions and potatoes) is a good proxy for price anxiety in the economy, and increasingly useful in gauging inflationary expectations — a key factor in monetary policy making, according to a CRISIL Market Intelligence & Analytics (MI & A) report.
This observation on Google web search requests by consumers for prices of TOP comes since prices of these commodities, which are key to their consumption, have kept the headline inflation under pressure in India and are also instrumental in keeping inflation volatility high.
“We find that the Google Trends index based on searches for ‘inflation’ is strongly correlated with inflation expectations of households based on the RBI’s survey, and hence, a good proxy for inflation anxiety in the economy,” per the report, put together by CRISIL’s economic research team comprising Dharmakirti Joshi, Chief Economist; Dipti Deshpande, Principal Economist; and Sharvari Rajadhyaksha, Economic Analyst.
Price shocks
They observed that prices of TOP — which form more than a third of the CPI vegetables index — are more volatile. Of these three, Google Trends data clearly highlights higher volatility in onion and tomato prices.
The maximum search interest for tomato prices was in July-August 2023, when tomato inflation was the highest in the past five years and a super spike in search interest for tomato prices was seen, per the the MI & A report.
“For onions, the index reached its peak with a super spike in December 2019, when onion inflation had crossed 300 per cent after prolonged rains hit onion harvest earlier in the year. Another peak was seen in late-2023, as onion inflation rose to 86.5 per cent in November,” said the economic research team.
They emphasised that onion and tomato prices correct quickly, due to short crop cycles and government intervention. However, they generate a lot of anxiety among consumers and producers when they shoot up. Hence, tomatoes and onion prices are prone to super spikes in search interest.
In contrast, the search patterns for potatoes did not show any super spike in the past five years, as their prices are relatively less volatile.
Fewer losses from potatoes, because of better storage, have kept prices and search anxiety on their prices range-bound. Tomatoes and onions lack adequate storage and face higher losses in comparison.
This is in line with inflation behaviour in the components of TOP — peak and average inflation for potatoes is lower than for tomatoes and onions, the report’s authors opined.
“The good news is that the spike in search interest for onion prices has moderated, indicating that the anxiety is cooling off. This is in line with the drop in onion prices since late November, due to fresh arrivals in the market and the ban on onion exports. The search interest for tomato prices has eased as well,” the report said.
The authors said easing inflation anxiety about TOP prices and cooling of non-food inflation has brought some relief at the end of the calendar year. But edgy vegetable prices, elevated foodgrain inflation and the now-recurring weather worries are keeping inflation concerns on the boil.
The authors noted that repeated flare-ups are a reminder that as long as food prices remain high and volatile, they will continue to influence headline inflation and, consequently, monetary policy.