Tuesday, February 28, 2023

Food inflation worries increased by El Nino fears

'El Nino' fears raise food inflation worry

 MUMBAI: Although the monsoon is still approximately three months away, there are already concerns that a drought-like El Nino effect that raises food inflation would do so. Inflation could rise during the current fiscal year as a result of a drop in agricultural output, according to a number of research reports.

The Pacific ocean's climate patterns are known as El Nino and La Nina. They have an impact on global climate conditions. India benefits from La Nina, but El Nino brings about warmer winters, dryer and hotter summers, and a lack of monsoon.

The National Oceanic and Atmospheric Administration (NOAA), which is based in the United States, has predicted that El Nino will reappear between June and December 2023 with a high probability (55-60%). This could have a negative effect on the Indian monsoon from June to October." Only three of the six years that NOAA predicted an El Nino in February had a probability of 45 percent or higher, but other years' conditions were neutral (normal). However, Jefferies stated in a research report, "We also note that the probability ascribed in 2023 (55-60%) is the highest in many years."

Emkay Global's research found that El Nino years have been the cause of all droughts over the past 20 years. Due to the already constrained supply and ingrained price pressures, a drought this year is likely to exacerbate price fluctuations. "This will further reduce the state's ability to procure grains, as retail prices are likely to move higher as well," the report stated. "However, this will further tighten the fiscal situation, as minimum support price hikes will need to be higher to ensure fair returns to the farm sector."

Following the finance ministry's monthly economic review, which stated that "some meteorological agencies predict the return of El Nino conditions in India this year," the reports were released. If these forecasts are true, there may not be enough monsoon rain, which could result in lower agricultural output and higher prices."

However, in addition to the monsoon and agricultural output, numerous other factors influence overall consumer price inflation. The price of crude oil is one of the main factors, and if it falls, it could offset the rise in food costs. However, analysts assert that a decrease in agricultural output would definitely affect rural demand.

Mitul Shah, head (research - institutional desk) at Reliance Securities, stated, "The prediction of a heat wave in March ahead of the Rabi harvest and initial forecasts of a below-normal monsoon this year due to El Nino is further adding to concerns about food inflation and fall in rural incomes." Shah says that sluggish rural demand, a slowdown in hiring, and a moderate increase in sales of consumer durables are making people worry about the economy.

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