Food inflation to moderate, but any surprise in monsoon or floods may trigger it upwards, notes UBI report

Food inflation, which has moderated a bit lately is further expected to come down in the coming months, Union Bank of India noted in a report, citing progressing Southwest monsoon and sufficient water in reservoirs across regions.

A rise in reservoir levels, coupled with improved sowing of kharif crops are expected to keep the supply-side concerns at bay for some time. However, the report cautioned that any negative surprise may trigger it upwards.

"With at least one more month to be covered by the monsoon, any negative surprise on the monsoon front whether deficit of rain or flooding will again trigger the food price inflation on the upper side," said the report

The retail inflation CPI softened drastically in July to 3.54 % from over 5 % in the previous month. Food inflation is currently at an over-a-year low. Kharif crop sowing is progressing steadily, with farmers planting crops across 1,087.33 lakh hectares so far, a 1.91 % increase, as against 1,066.89 lakh hectares in the same period last year.

Commodity-wise, paddy, pulses, oilseeds, millets, and sugarcane sowing have been higher year-on-year. Sowing for cotton and jute has, on the other side, been on the lower side. In the 2023 Kharif season, the total area under cultivation across the country was 1,107.15 lakh hectares

On the monsoon front, the cumulative rainfall over the country has turned from a deficit to an 8 % surplus now. Rainfall picked up steadily in August. However, uneven spatial distribution remains a concern, with the south Indian region continuing to run a surplus of 26% vis a vis east and northeast Indian region facing a deficit of 13 %.

However, the good thing is that the major crop cultivating northwest region has progressed from 18 % deficit in July end to 4 % surplus now. The forecast of rainfall over the country during September 2024 is most likely to be above normal, at 109 % of the Long Period Average, IMD said recently in its update.

Above-normal rainfall is likely over most parts of India, except some parts of extreme north India, many parts of south Peninsular India, and most parts of northeast India where normal to below-normal rainfall is expected.