Opinion

El Nino may not heat up inflation

NALINAKANTHI V | Updated on November 24, 2017 Published on June 05, 2014

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A recent report from the US Climate Prediction Centre (CPC) has suggested to an increased probability of El Nino conditions strengthening this year. But will that propel domestic inflation? Not necessarily. El Nino is a periodic weather condition which warms the Pacific and triggers a series of side effects in several regions. It usually causes deficient rain in Asia and Australia.

But El Nino by itself doesn’t always mean a weak monsoon in India. Analysis of the historical data reveals that it is the timing of El Nino onset that decides the impact on rainfall. In the years when El Nino started along with the south west monsoon, rainfall has been deficient.

In 2002, the increase in ocean temperature commenced early in April, ahead of the monsoon onset, resulting in 19 per cent below-normal rainfall during June-September. Similarly, in 2004 and 2009, El Nino conditions coincided with the monsoon onset in June. Monsoon rainfall was severely deficient at 14 and 22 per cent below the ‘long period average’ in these years. But in the years when El Nino was late to emerge, the effect on rainfall was less significant.

For instance, in 2006, the rise in ocean temperature started late in August, and the country experienced near normal monsoon that year. This year, the El Nino is expected to gain strength from August onwards. This may spell some relief for India.

The relationship between monsoon and food grain production is quite direct. Food grain production has slipped in the years when monsoon rainfall was significantly below normal.

For instance, in 2002 and 2004, when rainfall was severely deficient at 19 and 14 per cent below long period average, domestic food grain production fell 18 and 7 per cent respectively. Likewise, food grain production went down 7 per cent in 2009-10, following a 22 per cent monsoon shortfall in 2009.

Does lower food grain production translate into high food inflation? The fall in food grain production during 2009-10 and 2012-13 was indeed quickly followed by a surge in food inflation.

Food inflation rose from 9.1 per cent in 2008-09 to 15.21 per cent in 2009-10. The subsequent year saw a further rise in food inflation to 15.8 per cent. Again, in 2012-13, food inflation jumped to 9.93 per cent, from 7.4 per cent in 2011-12.

That said, given that food articles have less than 15 per cent weight in the wholesale price index inflation (WPI), the effect on the headline WPI has not been profound in the past.

For instance, despite the jump in food inflation during 2009-10, WPI fell to 3.86 per cent from 8.09 per cent in 2008-09. Similarly, despite the surge in food inflation, WPI fell to 7.36 per cent in 2012-13 from 8.96 per cent in 2011-12.

So even if we have an El Nino this year, late onset or a cooling off of non-food items in inflation could still come to the consumer’s rescue.

Published on June 05, 2014
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