Hopes pinned on timely onset and distribution of monsoon

Timely onset and a proportionate distribution of the forthcoming monsoon season would be crucial to support agriculture output in the country.Driven by huge deflation in the fuel and light segment, and softer prints for clothing and footwear apart from for tobacco and intoxicants groups, the headline CPI inflation print dipped marginally to 11-month low of 4.8 per cent in April from 4.9 per cent in the year-ago period. It was despite the fact that inflation in the food and beverages group inched up to 7.9 per cent from 7.7 per cent a year ago. Notably, inflation in spices eased to single digits in April in over 22 months.Although the YoY inflation in the miscellaneous segment remained unchanged at 3.5 per cent in April vis-à-vis the previous month, the MoM uptick was larger than expected at 0.6 per cent, marking the highest increase in 23 months. This can largely be attributed to an unusually high three per cent sequential increase in the personal care and effects sub-group, possibly reflecting the surge in global gold prices.The food and beverages inflation, as per Icra, will retrace above the eight per cent mark this month, partly on account of the adverse base, as well as the above-normal temperatures and heat wave conditions during the summer season.

This would push the headline CPI inflation to a five-month high of 5.1-5.2 per cent in the current month.The impending favourable base effects during Q2 may soften the headline inflation print to 2.0-4.0 per cent in July and August. With continued uncertainty, especially on the risks to the food inflation trajectory after Q2, the chance of a stance change in the upcoming June monetary policy review appears rather dim.The headline inflation number at 4.83 per cent masks the rather ominous food inflation figure of 7.9 per cent. There is no doubt that the new government will draw relief from the expectation and overriding optimism of a normal monsoon. However, erratic behaviour from the monsoon threatens to send food inflation soaring even higher, which could dampen consumption going forward and dent the already fragile recovery seen in rural consumption levels. Conspicuous in the food inflation numbers is the surge in prices of vegetables and pulses with both surging by 28 per cent and 17 per cent, respectively.

Price inflation in meat and fish and cereals also makes for a worrisome imprint at 8.17 per cent and 8.63 per cent, respectively.Despite healthy progress in Rabi production, as per Emkay Global, uneven seasonality in vegetable prices together with increasing incidence of climate shocks warrant careful monitoring. With expectations of normal monsoons, analysts expect food inflation to moderate in the coming months. Even though pre-monsoon showers have provided relief from the scorching heat in different parts of the country, the rest will depend on the normal and evenly distribution of the monsoon, which is likely to enter Kerala by the month-end.