India is currently experiencing severe heatwaves, with temperatures in April soaring above usual levels, and meteorologists from the IMD foreseeing no immediate relief.
While these extreme conditions pose health risks, economists caution that they could also have a substantial impact on agricultural productivity, potentially driving up inflation.
Experts have warned that the escalating heatwave could reduce farm output and contribute to inflation rising by 30-50 basis points.
This prediction comes amidst a surge in vegetable prices, with inflation expected to remain elevated until June, pending the arrival of a normal monsoon.
Radhika Rao, Executive Director and Senior Economist at DBS Group Research highlighted the vulnerability of perishable food items, particularly vegetables, which have consistently influenced inflation dynamics this fiscal year.
"The impact of the heatwave will be most pronounced in perishable food varieties, especially vegetables, which is one of the most volatile components of the inflation basket and has consistently exerted significant pressure in FY24," Rao explained to The Economic Times (ET).
Rao suggested that the inflationary impact could range from 30-50 basis points, depending on the pace of sequential price increases, expected to be notably higher during this period.
"The prevailing heatwave is anticipated to negatively affect rural farm income, food inflation, and overall health conditions," said Rajani Sinha, chief economist at CareEdge, speaking to ET.
In March, consumer inflation dropped to its lowest in 10 months at 4.9%, but food inflation remained high at 8.5%, primarily due to a significant surge in vegetable prices, which increased by 28%.
Vegetable inflation has remained in double digits for five consecutive months, with experts predicting it to average around 28% this quarter. Additionally, experts anticipate a rise in fruit prices as well.
"This phenomenon will keep the prices of perishables like vegetables and fruits high, impacting their yield and shelf life, thereby leading to reduced supply," explained Sinha.
Fruits and vegetables constitute 8.9% of the total weight in the inflation basket.
Debopam Chaudhuri, the chief economist of Piramal Group, mentioned to ET that logistical challenges, especially during extreme weather events, could exacerbate volatility.
Heatwaves could also impact the kharif season if monsoon rainfall is below average, leading to further declines in reservoir levels.
The combined impact of soaring temperatures on agriculture, particularly perishable crops, along with potential disruptions in the supply chain, presents significant challenges to food prices and inflation dynamics in the coming months.
