Food Inflation Set to Ease Despite Monsoon Uncertainty: Union Bank Report

The Union Bank of India forecasts a decline in food inflation due to ample monsoon rainfall and adequate reservoir levels. However, the bank warns that any adverse weather events could push prices higher. Kharif crop sowing shows improvement year-on-year, despite regional rainfall disparities.

Food inflation, which has moderated a bit lately, is expected to ease further in the coming months, according to a report by the Union Bank of India. The report attributes this forecast to a progressing Southwest monsoon and sufficient water levels in reservoirs across various regions. Enhanced reservoir levels and improved sowing of kharif crops are expected to alleviate supply-side issues for some time. However, the report cautioned that any negative surprises could push inflation upwards.

"With at least one more month of the monsoon season remaining, any negative shift in weather patterns, such as insufficient rainfall or flooding, could trigger a rise in food price inflation," the report noted. The retail Consumer Price Index (CPI) inflation sharply decreased in July to 3.54 per cent from over five per cent the previous month, with food inflation hitting a year-long low.

The sowing of kharif crops is progressing steadily. Farmers have planted crops across 1,087.33 lakh hectares so far, marking a 1.91 per cent increase from last year's 1,066.89 lakh hectares in the same period. Year-on-year growth has been noted primarily in the sowing of paddy, pulses, oilseeds, millets, and sugarcane. However, cotton and jute/mesta sowing has seen a decline.

In the 2023 kharif season, the total area under cultivation across the country reached 1,107.15 lakh hectares. Monsoon rainfall has turned from a deficit to an eight per cent surplus. Although rainfall picked up in August, uneven spatial distribution remains an issue. For example, South India is experiencing a 26 per cent surplus, while the East and Northeast regions face a 13 per cent deficit. The crucial northwest crop-growing region has improved from an 18 per cent deficit at the end of July to a four per cent surplus now.

The Indian Meteorological Department (IMD) recently forecasted that rainfall in September 2024 is likely to be above normal, at 109 per cent of the Long Period Average. Above-normal rainfall is expected in most parts of India, except some areas in extreme North India, the southern Peninsular, and the Northeast, where normal to below-normal rainfall is anticipated.

(With inputs from agencies.)