Onion prices going through the roof

Mumbai: Onion prices have gone through the roof in Goa; it was quoted at Rs 110 per kg in Panaji. Metros like Mumbai and Chennai are faring no better, inching closer to the Rs 100 mark.

So, the bulb is being sold at Rs Rs 92 in Mumbai and Rs 80 per kg in Chennai. It has already touched Rs 100 per kg in Kolkata.

Also Read: Cabinet approves import of 1.2 lakh tonnes of onions to improve domestic supplies

What makes it worrisome is that food prices are caught in a price spiral in world's biggest emerging markets, posing a possible inflation threat after months of dormant pressures.

Bloomberg has an interesting take on this. It says Asia's two largest developing economies are facing a price surge for staple products -- pork in China and onions in India -- that are central to consumers' diets.

In Turkey and Nigeria, supply problems are driving up costs, while United Nations data show global food prices rose at the fastest pace in October in more than two years.

While the spike is painful for poorer consumers, it hasn't reached a level to convince central banks to pull the brake on policy easing, as they remain focused on boosting economic growth amid a global slowdown.

The threat of a price shock is real. Nomura Holdings Inc. economists recently warned of three potential triggers of higher food costs -- weather-related shocks, higher oil prices and a sharp depreciation in the dollar -- saying emerging and frontier markets are most at risk since food costs make up a larger portion of their consumers' income.

The key will be whether the increases begin to feed into consumers' longer-term inflation expectations, which could drive up wages and core inflation in a spiral, said Sonal Varma, Nomura's chief economist for India and Asia ex-Japan. That brings us back to onions.

On Wednesday, the Indian government extended prohibitions on stocking of edible bulb by traders across the country for an indefinite period. Besides stock holding limit, the Centre has banned exports of onion and importing 1.2 lakh tonnes to control prices.

The buffer stock of 57,000 tonnes of onions has been liquidated and therefore the government decided to import.

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