Crude oil is no longer the villain. A new threat could raise your household bill
For weeks, economists feared that the conflict in West Asia would become the biggest threat to India's inflation outlook. A spike in crude oil prices
For weeks, economists feared that the conflict in West Asia would become the biggest threat to India's inflation outlook. A spike in crude oil prices could have made petrol, diesel and cooking gas costlier, pushed up transportation costs and squeezed household budgets. That risk has eased considerably. Oil prices have cooled from their recent highs, tensions in the region have eased following the US-Iran peace agreement, and fears of a major supply disruption through the Strait of Hormuz have receded. Read Full Story Yet inflation concerns have not disappeared. India's retail inflation rose to 3.93% in May from 3.48% in April, driven largely by higher food and fuel prices. Wholesale inflation climbed to 9.68% during the month as the energy shock from the Middle East conflict continued to ripple through the economy. The Reserve Bank of India (RBI) has also raised its inflation forecast for FY27 to 5.1% from 4.6%, citing higher energy costs and growing uncertainty. But while crude oil dominated inflation discussions just weeks ago, economists now believe a bigger threat may be emerging much closer home: the monsoon. OIL NO LONGER THE VILLAIN Dr Manoranjan Sharma, Chief Economist at Infomerics Ratings, said that the bigger inflation risk for India today is no longer crude oil but rainfall.
"A weak monsoon now poses a bigger inflation risk to India than crude oil. Global oil prices remain relatively contained, the West Asian crisis appears to be easing, and India has diversified crude imports while strengthening refining and pricing flexibility," Sharma said. The reason is simple. Food carries a much larger weight in India's inflation basket than fuel. "Nearly half of India's cultivated land remains rain-fed. Since food has 46% weight in the CPI basket, deficient rainfall can sharply reduce output of cereals, pulses, vegetables, fruits and oilseeds, driving broad-based inflation and directly impacting household budgets," he said. In other words, while a jump in crude prices affects transportation and logistics, poor rainfall can directly hit the prices of everyday food items that households buy every week. WHY YOUR GROCERY BILL COULD RISE For consumers, the most visible impact of a weak monsoon is often felt at the vegetable market and grocery store. When rainfall falls short, agricultural output suffers. Supplies tighten, and prices begin to rise. Sharma noted that poor monsoon conditions, particularly during El Nio years, often lead to sharp increases in food inflation. "A weak monsoon, especially under El Nio conditions, significantly raises household expenses through higher food prices.
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