Food inflation rose to a six-month high of 9.36% in June.
“Inflation expectations for crops should be more subdued on account of rainfall progress,” said Madan Sabnavis, chief economist at Bank of Baroda, highlighting that the progress from now on till the harvest (in September) will influence sentiment, as any news of excess or deficit rainfall in any specific division which covers production of any crop can have an inflationary signal.
The spatial distribution of rainfall was uneven this season, with Southern and Central India receiving excess rain, while 10 met divisions saw a double-digit deficit.
“The risk of food inflation continues to remain elevated as key agrarian states in northern India and the Eastern Gangetic plains continue to experience deficit rainfall”, said Rajani Sinha, chief economist, CareEdge.
Kharif sowing has increased 2.3% since last year, but these growth numbers could be misleading, as last year witnessed poor sowing activity because of El Nino induced disruptions, Sinha said. Compared to July 2022, the area sown has actually decreased by 2.4%, primarily due to poor sowing of pulses.”Going forward, even though a high base last year is going to pull headline inflation down towards 4% in Q3, there are upside risks to food inflation due to an uneven monsoon even as sowing of key summer crops are tracking better than last year,” Goldman Sachs said in a report Friday.The path of inflation will also be determined by factors other than monsoon, like how swift the government is with supply augmentation. If India enters the import market, global prices may start rising, experts cautioned.
“Improved irrigation intensity in grain-producing states such as Punjab and Haryana is a positive sign. Even if there is monsoon failure, it will not result in a large drop of agri-GVA(Gross Value Add,” said DK Pant, chief economist at India Ratings.
Sakshi Gupta, principal economist at HDFC said “deficient rainfall is likely to affect perishables, as opposed to key cereals.”
Core Issue
Experts also anticipate an upward trend in core inflation.
“Core inflation has started rising as companies try to cover higher input costs. With growth expected to be above 7% this year, the demand-pull forces would also come into action. Therefore, we can expect core inflation to move upwards towards 4% from the present level of 3%,” noted Sabnavis.