Will a better monsoon provide some relief from inflation woes?

Did you have a laugh seeing all the lemon-themed memes on social media? Lemon prices have risen sharply, just like the rates of petrol, diesel and LPG. A fortnight ago, lemons were retailing at about 50-100 rupees per kg.

Blame rising fuel prices for this situation, and the sudden explosion in lemon jokes. But, it’s no laughing matter.

According to a LocalCircles survey, about nine out of every 10 Indian households have felt the pinch of rising vegetable prices in the past 30 days. 37 per cent of respondents said that they were experiencing an increased spending of over 25 per cent on vegetables. 

According to another survey, around 24 per cent of Indian households have been forced to reduce their consumption of edible oils due to a sharp spike in retail rates. Around 29 per cent have downgraded their cooking oil to affordable alternatives.  

Amid all of this, the India Meteorological Department has predicted that cumulative southwest monsoon over the country as a whole is expected to be ‘normal’ in 2022. Skymet, too, indicated that southwest monsoon in 2022 was expected to be ‘normal’.

This should come as a relief to millions of Indians. A good southwest monsoon is supposed to boost agriculture production, thereby easing inflationary concerns.

However, the devil lies in the details. IMD’s forecast showed that the monsoon could be largely ‘above normal’ in most parts of India, barring pockets of North-East India, Jammu and Kashmir, Rajasthan, Haryana, Punjab, Tamil Nadu, Kerala and Ladakh. Meanwhile, Skymet said that the first half of the southwest monsoon is expected to fare better than the latter half of the season.  

Speaking to Business Standard, ICRIER’s Ashok Gulati said that a normal monsoon might bring some cooling effect on vegetables grown within the country.

However, imported inflation, such as in the case of edible oils, would not be impacted. Uncertainty surrounding the Russia-Ukraine conflict would continue to cause inflationary pressure. Despite a normal monsoon, inflation was expected to stay in the 6 per cent-plus band, if not higher.        

If the anecdotal reports and surveys aren’t enough, here are the official numbers. The headline inflation rate has remained above the 6 per cent mark for three consecutive months. Analysts were surprised by the consumer price index-based inflation rate for March. At 6.95 per cent, the rate stood at a 17-month high. And, it is likely to remain elevated in the coming months given its broad-based nature.

Food items primarily drove the rise in retail inflation in March. The consumer food price index rose to 7.68 per cent from 5.85 per cent the month before. The fact that core inflation rose to 6.4% in March should also raise red flags.

Given the limited projected relief from the monsoon and March inflation data, should the Monetary Policy Committee consider increasing rates at a faster pace than what was expected a few weeks ago?