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Are there chances of an improved monsoon?
Monsoon conditions have seen significant improvement in spatial and temporal distribution. The deficit is now no worse than recent El-Nino episodes with central India at a surplus – despite continued worsening of El-Nino trends. However, wheat stocks are still lower before the Ukraine war, while global prices are rising. Concomitantly, other food items are also seeing higher prices. Potential for lower reservoir levels and soil moisture still pose risks to inflation, especially with only half the Monsoon through. These add to other risks from global prices and higher nominal growth that might indicate pricing power.
Despite strengthening El-Nino, monsoon temporally/spatially improving
The monsoon deficit is steadily improving, and is approaching the 10% threshold for deficient rains. This is despite worsening of El-Nino conditions as seen in the Relative Nino 3.4 index and ENSO. Spatial distribution has also improved, with Central India seeing the best trends. On a longer-term basis, rainfall is also better thatn in 2014, 2009 and 2002, within the overall correlation of El-Nino and rains. El-Nino years and deficient rainfall do also impact crop production, though sowing has caught up with normal trends, with some weakness in pulses.
Despite healthy food stocks, all might not be well
Reservoir levels are now below both last year and 10y average levels. FY26 production was at a record, but central pool wheat stocks are still below level ahead of the Ukraine war, when high prices drove exports rather than storage. With the hot and dry European season, wheat prices are once again rising; lower irrigation in Rabi creates risks along this metric ahead. Already, wheat prices are rising domestically along trend. Coupled with warmer domestic weather, vegetables, sugar and other food prices are also rising. Edible oils are higher with El-Nino hitting East Asia.
With only half the monsoon over, low soil moisture does indicate risk
India soil moisture adequacy is not very positive, especially when compared to previous year levels. With only half the Monsoon over and El-Nino indicators continuing to worsen, there are risks around inflation, adding to shocks from higher petro-product prices. These are also aided by indications of stronger nominal growth and higher pricing power. Though inflation expectations are stable, longer-term inflation risks might be to the upside of latest projections.
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