Bengaluru: While the overall rainfall exceeded expectations, the monsoon season was marked by significant unevenness, increasing upside risks to food inflation, said QuantEco Research in a note. It estimates consumer price index based inflation to be at 6.7% in the current fiscal year.
India’s Southwest monsoon season, June to September, ended in a surplus of 6% this year versus a long period average to beat India Meteorological Department (IMD’s) forecast of 3% surplus.
However, the QuantEco Rainfall Index, which is a foodgrain weighted index of rainfall distribution in key agri states, remained in deficit throughout 2022 Southwest monsoon season.
It said that notwithstanding the moderation in global food prices, risks to domestic food inflation at the current juncture are on the upside. These risk factors include the likely downside in paddy Kharif output, onset of festive season demand, decline in area sown under kharif pulses, and intense rain spells seen in some states
“For now, we hold on to our FY23 CPI inflation forecast of 6.7%. The possible upside in food inflation could get offset by the downside in non-agri commodity prices, especially if crude price remains sub-$90 per barrel levels; given escalating downside risks to global growth,” said QuantEco Research.
It added that a late withdrawal of monsoon along with high level of water in reservoirs (at 111% of last year as of end of September 2022) and continuing La Nina conditions in the Pacific augur well for 2022-23 Rabi sowing and output.
“This could perhaps break the weather jinx weighing on output in last 3 consecutive seasons, and more importantly arrest the trend of rising domestic price of cereals,” it said.
India’s retail inflation is hovering at record levels of 7% remaining over the Reserve Bank of India’s tolerance bank of 4-6% for eight straight months, largely led by higher food prices and pressures from rising global oil and commodity prices.
The RBI also retained inflation projection at 6.7% for FY23 in its latest policy meet, estimating it at 6.5% for the third quarter and down to 5.8% in the last quarter.
The RBI- led monetary policy committee hiked repo rate by 50 basis points for the fourth time in a row on 30 September, taking the policy rate to a three year high of 5.9%.
