Monsoon-led food inflation spikes show decline over time

Rains played catch-up after delayed onset in Kerala

The spike in food inflation during years of poor rainfall has been less severe in recent years than in earlier decades.

Key drought years have seen food inflation spike to double-digits in the 1960s and 1970s, shows data from DSP Asset Managers July 2023 Netra report. This has tapered to largely single-digit levels in key drought years after the turn of the century.

The official forecast suggests rainfall to be within 96 per cent of the long period average. Private agency Skymet forecasts below normal rainfall at 94 per cent of the long period average.

Poor rainfall years had seen spikes in food prices in earlier decades. Major drought years in 1965-66 and in 1966-67 saw an inflation spike of between 10-14 per cent. It was 6.2 per cent in 2015-16 and 4.3 per cent in 2014-15. The spike was 18.8 per cent in 2009-10. But it remained below the 5 per cent mark in both 2004-05 and 2002-03. (chart 1).

The DSP report noted that the impact may be muted by better mechanisms to handle volatility than was available in the past. It also said that other issues, including a spike in global food prices, macroeconomic issues in India and a weak currency also played a role in higher inflation spikes in the past. Better mechanisms may help limit the impact despite the shadow of the El Nino weather phenomenon which tends to negatively affect rainfall, according to the note.

“In case of a weak EL Nino impact, the risks to India’s inflation trajectory and growth will be minimal. However, expect slower growth if EL Nino intensifies,” it said.

A Business Standard analysis of past onset days shows that the longest time  taken in recent years was in 2017, when it took around 50 days for rains to cover the entire country after the onset of monsoons in Kerala. In contrast, the monsoon winds covered the entire country in almost a fortnight in 2013.

The current year saw the onset in Kerala on June 8. It covered the entire country on July 2. The total time taken since onset in Kerala was 24 days. This is the fastest since 2015 when it happened in 21 days (chart 2).