The onging heatwaves in the country are likely to keep food inflation elevated for longer and overshoot RBI’s inflation projection for Q1 as well as Q2 of FY24
“Heatwave seems to be persisting longer than usual with IMD alerts for certain northern States and Eastern part of India still continuing. These are also the major TOP producing States. Further, harvesting period is also nearing its end, so there will be a lag in fresh arrivals. We expect pressure on headline CPI to continue and do not foresee food inflation to dip below 7.5-8% in the next two-three months. Thus, weather vagaries may lead to CPI overshooting RBI’s projection both in Q1 as well as Q2FY25,” according to a report by Bank of Baroda.
The major impact of the ongoing heatwave will be felt on inflation amidst a sharp increase in prices of staple vegetables such as tomato, onion and potato, it said, adding that due to the heatwave, production of these perishables has been impacted which is also reflected in lower mandi arrivals. As a result, prices of these commodities have seen a significant uptick which is expected to keep food inflation elevated in the near-term.
The inflation momentum
“This year even adjusting for this seasonality, the sequential momentum is higher than last year, both in Apr’24 as well as May’24. A part of it can be attributed to rising milk prices, which in turn are impacted due to rising fodder prices on account of adverse weather conditions. Apart from ice cream, even the seasonally adjusted sequential momentum for fruit juices and shakes and refrigerators has seen a pickup, which was not visible in the cumulative data. However, prices of air conditioners/air coolers have shown momentum in terms of cumulative inflation, which is reflective of higher demand for these durable goods,” it said.
While there was an early onset of monsoon over the southern part of the country, the progress and spatial distribution of rains has not been even. “For the country, the South-West monsoon is 19% below LPA. However, region wise, while the southern peninsula has received rainfall which is 13% above LPA, the monsoon in other regions has been lower. In fact, rainfall in north-western part of India which has been under a relentless heatwave is 51% below LPA,” the report said.
