Markets
Monsoon rainfall boost in August likely to ease pressure on food inflation
Summary
- Monsoon rains so far this month have been 18% above normal, improving spatial distribution across India and potentially easing food inflation pressures.
Monsoon momentum picked up in August, which would likely translate into lower food prices and provide much-needed relief on the food inflation front. As of 29 August, monsoon rainfall across India was 7% above normal, with showers in August 18% above than normal, according to data compiled by IDFC First Bank. Spatial distribution trends were positive, with 51% of the country experiencing normal rainfall and 33% receiving excess to large excess rain. The only regions showing deficit were east and northeast India.
This improved spatial distribution has led to higher acreage under Kharif, or summer, crops compared to last year, and reservoir levels have also risen, all of which bode well for curbing elevated and sticky food prices. Remember, adverse weather conditions had led to a month-on-month (m-o-m) spike in vegetable prices over the past two months. However, in July, inflation measured by the headline consumer price index eased to 3.54%, with food inflation falling to 5.1%, though this was largely due to a favourable base.
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But the good news is that, in August the rise in vegetable supplies is beginning to have an impact on prices which are tracking lower by 10% m-o-m, said the IDFC First Bank report dated 29 August. "Pulses and cereals which tend to see more persistent price pressures are seeing some m-o-m improvement with a reduction in prices by 1.1% and 1.7%, respectively," added the report.
Meanwhile, in its August policy meeting, the Reserve Bank of India maintained status quo with the repo rate unchanged at 6.5%. The minutes of this meeting pointed to concerns emerging on food price shocks adding to persistent food inflation pressures. More clarity on food inflation risks will emerge as the monsoon season concludes and that decides about the timing of change in monetary policy stance and interest rate cut.
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“As sowing and monsoon inches closer to the end, the focus will now shift towards the harvest season. Excess/large rainfall can be damaging for crops," said a Bank of Baroda report dated 28 August.
