After Iran war, what below-average rains could mean for inflation, Pg18

Key Highlights:

• The India Meteorological Department (IMD) forecasts a below-average monsoon in 2026, at 92% of the Long Period Average (LPA).
• India's wholesale inflation rate has surged to 3.88%, a three-year high, driven by rising petroleum prices.
• The Reserve Bank of India (RBI) projects retail inflation to average 4.6% in 2026-27, assuming a normal monsoon.
• El Niño conditions could further reduce rainfall, impacting Kharif output and potentially raising CPI inflation above 6%.

Detailed Insights:

• A weak monsoon can increase inflation through higher food prices, but the correlation between rainfall and agricultural production is not always direct.
• Spatial distribution (rainfall in major crop-producing regions) and temporal distribution (timing of rains) are critical factors influencing agricultural output.
• Below-normal monsoon could limit reservoir replenishment, impacting irrigation and potentially affecting agricultural production.
• Historical data shows that during El Niño years, monsoon rainfall has been significantly below LPA, leading to declines in Kharif output.
• Reduced agricultural output combined with higher food inflation could negatively impact the rural economy, which has benefited from good monsoons in recent years.
• Concurrent war in West Asia and weak rainfall could exacerbate inflation, potentially pushing CPI inflation above 6%, depending on the severity of El Niño and oil prices.

Key Concepts Involved:

• Long Period Average (LPA): The average rainfall received over a 50-year period, used as a benchmark for monsoon forecasts.
• Kharif Output: Agricultural crops sown during the monsoon season (June-October) and harvested in the autumn.
• El Niño: A climate pattern characterized by unusual warming of surface waters in the central and eastern tropical Pacific Ocean, often associated with weaker monsoons in India.

El Nino