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A single adverse weather event such as El Niño does not necessarily lead to scanty rainfall or high food inflation, according to an article in RBI’s latest monthly bulletin.
Indian Ocean Dipole (IOD) oscillations often interacts with El Niño or La Niña to determine the actual rainfall pattern and the consequent food inflation, said RBI officials Saurabh Ghosh and Kaustubh
“Our empirical findings indicate that the relationship between rainfall and inflation is non-linear and depends on several cofactors.
“Our data analysis highlights that a single adverse weather event (e.g., El Niño) may not be a threat to macroeconomic stability, but we need to be vigilant on other factors, such as IOD oscillations, local supply chain disruptions caused by acute climate events, and global commodity prices.,” the authors said.
- Also Read: How will El Niño affect rice prices?
The officials noted that there were years when, despite El Niño, rainfall was close to normal and inflation remained benign.
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Their analysis indicates that it is indeed the IOD that often interacts with El Niño or La Niña to determine the actual rainfall. This is evident as average inflation was higher during the negative IOD years as compared with the neutral or positive IOD years.
La Niña years also experienced a wide range of agricultural growth and inflation, depending on the corresponding IOD oscillation status and other exogenous factors.
Further, the analysis by the RBI officials indicates that while higher rainfall leads to higher agriculture growth (in both the rabi and kharif seasons), the relationship of inflation with rainfall is non-linear. This could be because rainfall impacts the food inflation dynamics through agricultural growth.
At the same time, other exogenous factors, such as international commodity prices also influence these growth-inflation dynamics.
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