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How a bad monsoon impacts inflation?
It's already July but the monsoon is yet to set into most parts of India.
According to the Indian Meteorological Department (IMD), the rainfall since June 1 is about 45% below normal on a pan-India basis. With a major part of India's agricultural sector dependent on the monsoon, a bad monsoon could play havoc with the Indian economy.
One of the main impacts of a bad monsoon is that it could result into lower food production. This in turn, by the laws of demand and supply, could lead to higher prices of food, that is increase the rate of inflation, especially the consumer inflation.
Of late the RBI has started putting more emphasis on consumer inflation rather than wholesale inflation. So while some nominal rise in consumer inflation can lead to no cut in the rate of interest by the RBI, but any major rise in inflation may force the central bank to hike rates, leading to higher rate of inflation in the economy
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