India may be affected with food prices being highly sensitive to weather-related disruptions
With both the Australia's Bureau of Meteorology and the US National Oceanic and Atmospheric Administration forecasting a strong likelihood of El Nino developing this year (perhaps as soon as July), there have been concerns about the potential impact on the region's food inflation.Credit Suisse believe that many observers overstate the risk of Asian food inflation surge from El Nino.
As per the Credit Suisse, over the past 20 years or so, only two out of four episodes have seen El Nino coincide with a significant surge in both global and Asia's food inflation. During these two episodes (2007-08, 2009-10), food price inflation was partly driven up by other factors, namely rice export bans by major food exporters and an oil price rebound in 2009-10.
As per the Credit Suisse, these conditions do not exist today. Both rice and wheat stock-to-use ratios are still quite substantial across the region, especially when compared to 2007. This makes the risk of food export ban low. A huge stock of rice in Thailand also provides a potential buffer against weather shocks like El Nino. Still subtrend growth in Asia should also cap second-round effects on wages and inflation in the region.
While Credit Suisse is less worried about a generalized surge in food CPI across the region, certain countries such as India, where food prices are highly sensitive to weather-related disruptions, could be disproportionately affected.
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