“…with monsoon rains currently being 53 per cent below normal and given the history of food prices tending to shoot up in July following a poor start to monsoon, it is amply clear there is no scope for complacency at this stage as far as India’s inflation risks are concerned,” the brokerage said.
The possibility of a 5 per cent or lower headline inflation can only play out if we are lucky and food prices do not rise in July and August, it added.
July will be a key month as poor monsoon could drive a potentially sharp spike in July food price inflation, it said, adding that in the last two episodes of lower rainfall in 2009 and 2014, there were spikes in the month.
The rainfall is 53 per cent below the normal so far and the arrival of the southwest monsoon has been delayed across the country, leading to late sowing of the summer crop.
Amid reports of tomatoes getting dearer, the brokerage said that the prices of key vegetables, such as onions, potatoes, and tomatoes, could also rise sharply in the coming months. “Given that there is a non-trivial threat of El Nino occurring in 2023, the delayed start to monsoon rains in India is worrying, particularly for the inflation trajectory going forward,” it said.
The weaker monsoon can also have an impact on the GDP growth front, the brokerage said, adding that the headline real GDP growth can fall by up to 0.30 per cent if the monsoon disappoints and agriculture sector growth turns out to be around 1 per cent as seen in the drought years of 2004, 2009, 2014 and 2015.