Food inflation test: Cloud delivery could help

We may owe this year’s bounty to the prospect of La Niña conditions taking hold in August-September, reversing last year’s El Niño dryness. (PTI)
We may owe this year’s bounty to the prospect of La Niña conditions taking hold in August-September, reversing last year’s El Niño dryness. (PTI)

Summary

  • The India Met Department’s forecast of above-normal rainfall this monsoon season spells optimism over farm output that could in turn cool inflation and grant RBI more policy space.

Given its summer prediction of an increased number of heatwaves, the India Meteorological Department’s rainy season forecast comes like a breath of fresh air. India’s official weather forecasting agency expects above-normal rainfall this monsoon—106% of the long-term average. 

Inflation, at 4.85% in March, is still above the Reserve Bank of India’s (RBI) 4% aim; food inflation is worse at 8.5%. Good rains bode well for agricultural output, as much Indian farming is dependent on monsoon precipitation for irrigation. We may owe this year’s bounty to the prospect of La Niña conditions taking hold in August-September, reversing last year’s El Niño dryness. As part of a global seesaw, warm water in the Pacific Ocean is expected to start tilting towards the Asian side, which could spell more rain in India. 

If the Met Department’s forecast is accurate, food inflation could ease, thereby weakening broader price pressures, assuming that crude oil prices don’t get stoked by hostilities in West Asia. Much of the world is striving to achieve price stability after the covid loosening of monetary policy. That includes India, where price stability is vulnerable to literal cloud delivery.

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