Although monsoon has gathered pace in July after a slow start in June, there is some risk of excess rainfall and floods posing a key risk to the inflation outlook, according to a report by Edelweiss Securities.
“The key risk to benign inflation outlook arises from the possibility of excess rainfall damaging crops. In such a scenario, rural consumption could be hit,” said the economy series paper on ‘What does good monsoon mean for inflation’ prepared by Edelweiss Securities Ltd.
Currently, CPI (excluding pulses) is 5.2 per cent against a headline CPI of 5.8 per cent. The firm expects a 60 basis point dip in CPI if pulses inflation declines to around five per cent. According to the report, monsoon was only a marginal factor in boosting rural sentiment or spending. It is far more dependent on the behaviour of agricultural prices, construction activity and government’s rural spending.
Forecasting a lower inflation by September, the paper said that the correction in international food prices (corn, wheat and soybean) along with expectations of good Kharif output raises hopes on the inflation front but it does not augur well for farm-incomes and rural-spending.
