CPI Heating Up Now, RBI to Extend Hawkish Hold
Comment of the Day

July 12 2023

Commentary by Eoin Treacy

CPI Heating Up Now, RBI to Extend Hawkish Hold

This article from Bloomberg may be of interest. Here is a section:  

Cumulative rains since the monsoon season started on June 1 were 30% below their long-term average on June 24. Heavy rainfall over the last few weeks has erased that deficit and cumulative rains now amount to a surplus of 2% as of July 12.

Heavy rains have also resulted in flash floods in northern India and damaged some crops. Overall, we believe rains would be beneficial for the summer crop, but excess rains can also hurt farm output in areas that have been flooded.

It is still early to say how the regional distribution of the rains pans out over the entire monsoon season, which lasts through September. The heightened risk of El Nino this year threatens to weaken the rain clouds over the South Asian subcontinent.

According to our estimates, the damage to farm output from El Nino could boost headline inflation by as much as 0.5 percentage point.

Eoin Treacy's view

It’s hot in the desert during summer, India gets excessive rain during the monsoon and it rains a lot in Ireland. Bloomberg’s typo today was funny and might be described as taking climate alarmism too far. (The lava flows are currently in Iceland).

For India a normal monsoon is generally considered good news. There will always be some untoward damage from excessive rains but reduced rainfall would be a much bigger issue. India still has a large number of people working on farms and with such a large population the price of food tends to play an important role in driving inflationary trends. 

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