Delayed monsoon may affect inflation; FY24 CPI is predicted to be 5.2%: German Bank

Even if official figures for May showed a cool-off, a German brokerage cautioned Friday that because to the delayed monsoon, there is no room for complacency on the inflation front.

According to Deutsche Bank, the average Consumer Price Inflation (CPI) for FY24 would be 5.2%, as opposed to the Reserve Bank of India’s prediction of 5.1% and the analyst consensus estimate of 5%.

There is little room for complacency at this point as far as India’s inflation concerns are concerned, the brokerage said, noting that monsoon rainfall are presently 53% below average and that food prices have a history of rising in July after a weak start to the monsoon.

Only if we are fortunate and food prices do not increase in July and August will the potential of a headline inflation rate of 5% or below materialise, it was stated.

According to the report, July will be a crucial month since a weak monsoon might cause a substantial increase in food price inflation. It also noted that rises in the month have occurred during the past two instances of low rainfall, in 2009 and 2014.

The nation has had rainfall that is 53% below average so far, and the southwest monsoon’s delayed arrival has caused the planting of the summer crop to be postponed.

The brokerage warned that important crops including onions, potatoes, and tomatoes might see dramatic price increases in the next months amid indications that they are becoming more expensive.

“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,” the report said.

The brokerage added that a weaker monsoon could have an effect on GDP growth as well, with the headline real GDP growth potentially falling by up to 0.30 percent if the monsoon falls short and agriculture sector growth ends up being around 1%, as was the case in the drought years of 2004, 2009, 2014, and 2015.Even if official figures for May showed a cool-off, a German brokerage cautioned Friday that because to the delayed monsoon, there is no room for complacency on the inflation front.

According to Deutsche Bank, the average Consumer Price Inflation (CPI) for FY24 would be 5.2%, as opposed to the Reserve Bank of India’s prediction of 5.1% and the analyst consensus estimate of 5%.

There is little room for complacency at this point as far as India’s inflation concerns are concerned, the brokerage said, noting that monsoon rainfall are presently 53% below average and that food prices have a history of rising in July after a weak start to the monsoon.

Only if we are fortunate and food prices do not increase in July and August will the potential of a headline inflation rate of 5% or below materialise, it was stated.

According to the report, July will be a crucial month since a weak monsoon might cause a substantial increase in food price inflation. It also noted that rises in the month have occurred during the past two instances of low rainfall, in 2009 and 2014.

The nation has had rainfall that is 53% below average so far, and the southwest monsoon’s delayed arrival has caused the planting of the summer crop to be postponed.

The brokerage warned that important crops including onions, potatoes, and tomatoes might see dramatic price increases in the next months amid indications that they are becoming more expensive.

“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,” the report said.

The brokerage added that a weaker monsoon could have an effect on GDP growth as well, with the headline real GDP growth potentially falling by up to 0.30 percent if the monsoon falls short and agriculture sector growth ends up being around 1%, as was the case in the drought years of 2004, 2009, 2014, and 2015.