Food items have 39.06% weight in India’s Consumer Price Index (CPI), the price gauge for the Reserve Bank of India.
A deep deficient monsoon could push food inflation by 50-60 basis points. One basis point is one hundredth of a percent.
“It will have lower than the 50 bps (0.5 percentage points) impact on headline inflation that RBI talks about as potential negative impact from adverse weather,” said Abhishek Upadhyay, senior economist, ICICI Securities PD.
“Moderate rain shortfall may not push up food inflation much. More so, given the otherwise favourable backdrop from low global crude and food prices.”
RBI expects inflation to ease to 5.1% in FY24. A less than 50 bps impact implies that the consumer inflation would remain within the RBI’s 2-6% target range even if the monsoon is poor this year.Retail inflation dipped to a 25-month low of 4.25% in May. Economists contend that inflation will likely stay below 5% in the coming months, as a high base from last year will keep it in check.Buffer stock availability and comfortable reservoir levels will also help. Yuvika Singhal, economist, QuantEco, believes the government will be ready to step in if prices rise.
“While a stronger intensity of El Nino could impact sowing and production, it would also mean that the government could step in with administrative measures to reign in prices, if need be,” Singhal noted.
The government imposed a stock limit on wheat till the end of FY24 on June 12, following restrictions on pulses like tur and urad to check retail prices.
Elections may also be a factor for the government to keep prices in control, experts said.
“The government won’t be comfortable letting inflation of pulses go beyond 7-8% in an election year,” said Paras Jasrai, senior analyst, India Ratings and Research.
General elections are due in 2024, whereas five assembly states will go to the polls by the end of 2023.
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.