At 34% above weekly average, India moves into surplus rainfall; vegetable prices lead food inflation

India has moved to surplus rainfall this year with the cumulative amount being one per cent above long-term average (LTA), while the weekly rainfall at 34 per cent above LTA, as of week ending July 14. According to the India Meteorological Department (IMD), June ended with a rain deficiency of 10 per cent, however, the deficiency may be covered to large extent in July which accounts for almost exactly a third of the overall rainfall in the season.

High spatial divergence continues in July, with North and West India seeing surplus rains with 56 per cent above LTA, while South (at -22 per cent) and East and North East (at -19 per cent) continue to be deficient. ‘’However, Central India has moved into surplus rainfall with three per cent above LTA, and it is hoped that as the monsoon continues to move across the country, the spatial divergence narrows in the coming weeks,'' said Madhavi Arora, Chief Economist at Emkay Global Institutional Equities desk.

Sowing status below last year's level due to surplus rainfall

India's overall area under sowing is currently around 49 per cent of the normal area, compared to around 52 per cent at the same point in 2022. The total area under sowing (53.6mn ha) is 4.3 per cent lower than last year due to surplus rainfall, according to Arora.

Down 10 per cent on an annual basis, rice sowing remains well below last year’s level, while pulses sowing is down 16 per cent, and oilseeds, down 10 per cent, also remains lower than last year. 

The economist noted that it is nevertheless encouraging that sowing progress has picked up in the last week. Cotton sowing is five per cent lower than last year, while coarse cereals sowing at 16 per cent and sugarcane at five per cent, are higher than last year. 

‘’Concerns arose from an uptick in domestic food inflation, influenced by higher mandi prices trending above minimum support prices, and muted Kharif sowing. The progression of the monsoon and the trend of Kharif sowing in July will be crucial factors in determining future inflation,'' said Vinod Nair, Head of Research at Geojit Financial services.

Also Read: India's retail inflation for June surges to 4.81%, economists expect it to rise further

Vegetable prices lead food inflation

Traders and farmers attribute the current price hike of vegetables to a combination of factors. The initial intense heatwave followed by intermittent rainfall and finally the surplus rainfall now has disrupted the vegetable supply chain. The erratic supply has created shortages in the market, subsequently leading to a sharp surge in prices.

Excessive rainfall can lead to flooding, which can wash away soil nutrients and damage crops. In fact, too much water can cause crops to become waterlogged, leading to root rot and disease.

India's consumer price index (CPI) inflation rose for the first time in five months to 4.81 per cent in June - pushed higher than expected due to a less supportive base and the onset of a surge in vegetable prices.

The consumer food price index (CFPI) jumped to 4.49 per cent in June 2023, compared to 2.43 per cent in May month and 7.75 per cent in June of the previous year.

The average retail prices for cereals (0.8 per cent), pulses (0.5 per cent) and vegetables (10.4 per cent) were higher on a weekly basis, while oils and fats were marginally lower (-0.4 per cent), according to Arora.

On an annual basis, the average prices for cereals (5.6 per cent), pulses (9.2 per cent) and vegetables (53.5 per cent) were higher, while those for oils and fats (-19 per cent) were lower. 

‘’There has been a sharp increase in tomato prices due to a supply shortfall, caused by a heatwave in February and the delayed monsoon, and this is expected to continue for a month or so until the new kharif crop hits the market around mid-August,'' said Emkay's Arora.

Earlier this year, the Reserve Bank of India (RBI) had expressed concerns about inflation due to sudden weather changes and the impact of El Niño. The central bank has paused interest rate hike in its last two monetary policy meetings. However, the surge in vegetable prices is likely to intensify inflationary pressures - delaying the possibility of interest rate reductions in the near future.

A higher inflation could lead to reduced purchasing power, affecting consumer spending patterns and the overall economic growth.