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Dry August and Crude Oil 🛢️

Inflation worries have come back to the centre in recent months, with prices for tomatoes and onions affecting each one of us. If you don’t know what the quantum of price rise was like, at least you’d have heard of Burger King taking them off their burgers?

But while prices are now receding, new inflationary fears are now brewing. One seasonal, and the other associated with oil.

Erratic monsoons

Before the monsoon even started, there was a lot of talk about how an El Nino can impact the monsoons, and cause a deficiency of rainfall in India, again triggering inflation.

However, despite a delayed start to the monsoon, July was more than fulfilling. Rainfall wasn’t just heavy - it caused flooding, landslides and severe damage in several parts of the country.

And then came an August, which was drier than ever. August has been so dry that rainfall was 36% below normal, and the lowest since 1901.

The delay-excess-shortfall pattern seen this monsoon is feared to impact crop yields. While the IMD anticipates normal rainfall for September, any shortfall will further elevate current risks.

Rising crude prices

While prices of vegetables and food items have taken limelight over the last few months, the OG hero of inflation had been forgotten - crude oil! Fears of recession, caused by regressive central bank policy across the globe put pressure on the price of crude.

However, things are changing again! Oil prices have popped to a 10-month high, thanks to - a soft-landing expected in the US, China bouncing back up (however poorly), and supply cuts being extended for another three months by Saudi Arabia and Russia.

With crude being a seriously large component of inflation, there’s a set fresh of worries to already looming fears of inflation.

What next?

Inflation can already be seen rising, as it stepped out of the RBI’s comfort zone, and a 15-month high in the month of July 2023.

The government has already sprung into action by putting a ban on rice exports, and levying custom duties on export of several vegetables and other food products.

All eyes will be on the inflation data for August, which will be released on September 12, 2023. The data is not expected to be very encouraging looking at ongoing trends.

Inflation is likely to continue being a cause of anxiety for some time now, despite all the positive economic activity.

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