Bloomberg News

India Inflation May Climb on Forecast for Deficient Monsoon

June 22, 2011

(Adds soybean and soybean oil prices in 15th paragraph.)

June 22 (Bloomberg) -- Monsoon rain in India will be below normal for the second time in three years, the weather office said, potentially lowering farm output and accelerating inflation that is the highest among Asia’s major economies.

Rainfall will be 95 percent of the 50-year average in the June-September season, Science and Technology Minister Pawan Kumar Bansal told reporters in New Delhi yesterday. That compares with 98 percent predicted by the India Meteorological Department in April. The bureau defines normal precipitation as 96 percent to 104 percent of the long-term average.

Prime Minister Manmohan Singh is relying on adequate rainfall to harvest record quantities of food grain and oilseeds for a second year and cool inflation, which has led the central bank to raise interest rates 10 times since mid-March 2010. Agriculture makes up almost 14 percent of the economy and a reduced farm production can increase imports, while also lowering rural incomes and hurting sales of tractors and cars.

“We have seen food inflation cooling down all the way from 20 percent to 8 percent year-on-year and if rains disappoint then obviously that trend can reverse very quickly,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. Inadequate rainfall “is likely to damp rural demand which in our view was extremely important in the overall economic activity” in the last fiscal year, she said.

India’s benchmark wholesale-price inflation quickened to 9.06 percent in May from 8.66 percent in April, according to data released on June 14. An index measuring wholesale prices of farm products including milk and lentils rose 8.96 percent in the week ended June 4 from a year earlier, according to the commerce ministry.

Food Prices

Global food prices will remain higher in the next decade than in the past 10 years as agricultural production slows and demand increases, the Organization for Economic Cooperation and Development and the United Nations’ Food and Agriculture Organization said in a joint report June 17.

India imported record quantities of sugar, lentils and cooking oil in 2009 following the weakest monsoon since 1972. A below-normal monsoon this year may prompt the government to keep a ban on exports of wheat and rice, and extend curbs on shipments of sugar.

The South Asian nation, the world’s second-biggest grower of wheat and rice, may need as much as 70 million metric tons of grains to supply to its citizens at subsidized rates after parliament approves a food security bill, Food Minister K.V. Thomas said in an interview last week. The government will keep a ban on exports of the food grains, he said.

Export Bans

India banned shipments of wheat in early 2007 and non- basmati rice in April 2008 to bolster domestic supplies amid a global food crisis. State reserves of food grains totaled 65.6 million tons on June 1, almost triple the quantity five years ago, according to the Food Corp. of India.

The forecast for below-average rains may further pressure India’s stocks, the worst performer in Asia this year, said Arun Kejriwal, a director at Mumbai-based Kejriwal Research & Investment Services Pvt.

“The market tone is currently bearish and confused,” he said by phone yesterday. “A comment like this will affect sentiments and only add to the pressure on stocks.”

The Bombay Stock Exchange Sensitive Index swung between gains and losses today as the forecast of a below-normal rainfall outweighed optimism that Greece may avoid a default on its debt. The index traded between 17,524.51 and 17,678.86 as Hindustan Unilever Ltd., India’s biggest household products maker, dropped the most in two weeks.

Wettest Month

Rainfall in July, the wettest month of the monsoon season, may be 93 percent of the long-period average as a weakening of La Nina weather conditions causes less precipitation, the forecaster said yesterday. Showers in August are forecast at 94 percent, it said.

Rains over northwest India, the nation’s main cane, cotton and rice-growing region, may be 97 percent of the 50-year average, the forecaster said. Central India, which includes the top soybean-producing areas, may receive 95 percent rainfall, while showers over the southern peninsula will be 94 percent, the weather office said. Showers over northeastern states, the top tea-growing region, may be 95 percent of the average.

Soybeans and refined soybean oil advanced for a second day in Mumbai today. July-delivery soybeans climbed as much as 1.8 percent to 2,341 rupees for 100 kilograms (220 pounds) on the National Commodity & Derivatives Exchange, while refined soybean oil for delivery in the same month added 0.8 percent to 645.70 rupees per 10 kilograms.

Futures Gain

“Oilseeds and soybean oil futures rose more than one percent, recovering from last week’s losses, supported by the forecast of below-normal monsoon rains,” AnandRathi Commodities Ltd. said in a report today. The prediction “triggered a rally in all agricultural commodities.”

Rains will be “well distributed” and below normal precipitation won’t hurt crops, Ajit Tyagi, director general of the bureau told reporters yesterday. The nation got 11 percent more rain than normal since the season began on June 1, according to the weather bureau.

India’s 235 million farmers depend on rain for irrigating crops from rice to cotton, and sowing of monsoon crops begins in June and harvesting starts in September. The rains typically start over the southern Kerala state by the first week of June, before blanketing the entire nation by July 15.

--With assistance from Shikhar Balwani in Mumbai. Editors: Thomas Kutty Abraham, Jake Lloyd-Smith

To contact the reporters on this story: Pratik Parija in New Delhi at; Prabhudatta Mishra in New Delhi at

To contact the editor responsible for this story: James Poole at

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