Milk and Dairy Products – Another Potential Inflation Sparker ?

India is the world’s largest milk producer, at 112mn tonnes currently. However, drought conditions, tighter feed and water availability have resulted in only a moderate growth in output; while demand has continued to rise due to shifting food patterns.

The key drivers of the upturn in India’s inflation so far have been primary articles (cereals, pulses) and manufactured food products (sugar, edible oil cakes). While we have highlighted the risk of higher commodity prices (metals and oils) resulting in inflation edging higher, another potential pressure point is milk and dairy products . This has a combined weight of ~5% similar to that of sugar/edible oil cakes. A demand-supply mismatch and rising offtake for
processed milk along with last week’s ~7% hike in milk prices could further aggravate inflation numbers.

The WPI Inflation numbers will be out on Thursday and this week is the week of Data releases from the sinking economy of the United States as well.