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Informist, Thursday, Aug 29, 2024

NEW DELHI – Food inflation in the country could fall by two percentage points over the next few months if the easing of heatwave conditions and the resultant drop in average temperatures across the country holds, according to HSBC Global Research. The fall in food inflation could also lower headline inflation by one percentage point, it said in a report today. 

"With normalising temperatures and falling food prices, it (headline inflation) could fall to 4% by end-2024. In fact, by March-2025, headline, core, and food inflation, are all likely to converge towards the 4% target," HSBC Global Research said in the report. 

Food inflation has been driving overall inflation for some time. The headline inflation has averaged 4.6% so far in the current financial year compared with food inflation of 8.0%.

The average temperatures across India have dropped by 0.5 degrees Celsius over the last month compared with the Mar-Jun period, according to the report.

With cooling temperatures after the severe heatwave earlier this year, HSBC expects the Reserve Bank of India to start easing rates in Oct-Dec. "We expect two 25bp (basis point) repo rate cuts, taking the policy repo rate to 6% by March 2025," it said. 

"While this is good news at a time when temperatures are normalising, it is worth keeping it in the back of our minds that over the medium term, rising temperatures could become a big problem for inflation management," HSBC said.

According to HSBC, temperatures are far superior to rainfall in explaining and forecasting food inflation. As irrigation facilities have improved over time, the low rainfall issue has been partly circumvented, especially in areas like northwestern India, it said. 

Furthermore, with temperatures crossing a certain threshold, the sensitivity of non-perishable food inflation to higher temperatures has grown even faster than for perishables over the last decade, it said. "The impact of weak rains can be managed by better irrigation facilities, but there is no magic wand to manage the impact of rising temperatures," it added.   End

Reported by Sayantan Sarkar

Edited by Saji George Titus

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