Poor monsoon can spike food inflation; can it push RBI to hike rates? Experts weigh in
El Nino will turn moderate in September and remain strong till December this year. A couple of days ago, Reuters reported India is poised for its lowest monsoon rains in eight years. "India is poised for its lowest monsoon rains in eight years, with the El Niño weather pattern seen crimping September precipitation after an August that is on track to be the driest in more than a century," Reuters quoted two weather department officials saying so.
The monsoon is critical for India as the country's agri sector significantly depends on monsoon rains. As Reuters pointed out the monsoon delivers nearly 70 per cent of the rain the country needs to water crops and refill reservoirs. Concerns are growing that as inflation is rising again, a poor monsoon can spoil RBI's efforts to control inflation.
India's consumer price index (CPI) inflation, or retail inflation, surged sharply to a 15-month high peak of 7.44 per cent in July 2023, driven by high food and vegetable prices. "The elephant in India is the monsoon, with August shortfalls rendering the outlook uncertain in the shadow of El Niño effects even as Indian Ocean dipole conditions are turning positive,'' said RBI's Deputy Governor Dr Michael Debabrata Patra in the latest MPC minutes released on August 24. More than half of India's population is dependent on agriculture and allied sectors for their livelihood.
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