Rain check on prices? Weak monsoon forecast clouds India’s inflation outlook

Inflation is not rising sharply at the moment, but is slowly starting to rise again, and weather is generally where the pressure starts to build. Consumer Price Index (CPI)-based inflation increased from 3.21% in February to 3.4% in March 2026, marking the third consecutive monthly increase under the revised 2024 base year series.

However, economists took a more cautious stance and suggested that there could be a potential increase in overall inflation this year.

IMD indicates monsoon is below normal

In this context, the India Meteorological Department (IMD) has placed the rainfall in the ‘below normal’ category, predicting that the rainfall in the Southwest Monsoon 2026 will be 92% of the Long Term Average (LPA).
One of the key variables currently involved in the discussion is the evolving monsoon outlook, especially in the context of possible El Niño weather in 2026. It typically brings warmer, drier conditions across large parts of Asia and increases precipitation in parts of North and South America. El Niño is caused by unusually warm ocean surface temperatures in the central and eastern equatorial Pacific. It occurs when weakening trade winds cause warm water to shift eastward, redistributing heat and disrupting normal atmospheric circulation; This then changes weather patterns around the world.

Why is El Niño important for India?

The relationship between El Niño and India’s rainfall patterns remains one of the more consistent climate signals. As reported by The Times of India, nearly 70% of El Niño years since 1980 have coincided with below-normal rainfall during the June-September monsoon season.

Forecast models from global organizations such as the European Center for Medium-Range Weather Forecasts (ECMWF) show that El Niño conditions are more likely to occur in May-June and are likely to develop into a strong event by the end of the year.

Also Read: Finmin: West Asia war and rain deficit could raise inflation, drag on India’s growth

ICRA said in its assessment that this was one of the lowest early forecasts in at least 25 years and coincided with a time when El Niño conditions may develop during the monsoon season. The agency has projected that FY27 CPI inflation may exceed 4.5% under the below-normal monsoon scenario.

It also flagged potential downside risks on agricultural production and rural demand, predicting that agricultural GVA growth in FY27 could face pressure around the baseline forecast of 3%.

Food inflation risks re-emerge

For India, this increases the risk of erratic or inadequate rainfall, which could affect crop production and therefore food prices.

Rumki Majumdar, Deloitte India Economist, said inflation will be a concern to watch out for as commodity prices may remain high even after the conflict subsides.

“High energy prices, combined with potential El Niño conditions and an unfavorable base, could also put new pressure on food prices, which have recently begun to stabilize.”

Reduced rainfall could affect planting and yields, tighten supply in essential food categories and fuel retail inflation, especially in the second half of the fiscal year.

RBI’s FY27 inflation map

This was despite the Reserve Bank of India’s Monetary Policy Committee, in its bimonthly April meeting, laying out inflation forecasts for FY27 with an unusual level of detail.

Core CPI inflation is expected to be 4.6% for the year; Quarterly, it increased to 4.0% in the first quarter, 4.4% in the second quarter, 5.2% in the third quarter and decreased to 4.7% in the fourth quarter.

Now, the projected increase in the third quarter (October to December) is particularly notable. This period generally reflects the delayed impact of monsoon outcomes on food prices and seasonal demand during the festive cycle.

No straight lines

According to SBI Research, the recent rise in CPI-based inflation was largely driven by housing, fuel and certain consumption categories, including paan, tobacco and intoxicants.

On the other hand, the report warned against establishing a linear connection between the amount of rainfall and food inflation results.

“Years with relatively comfortable rainfall witnessed high food inflation of 98% rainfall and 8.43% food inflation in FY 2009 and 102% and 15.2% in FY 2011, while weaker rainfall years of 93% (FY2013) and 91% (FY2019) were associated with much lower food inflation of 6.33% and 0.09% respectively.”

The report also noted relatively comfortable buffer stocks.

“Buffer status of food grains (mostly on rice front at 380 LMT) [lakh metric tonnes]) if so, it seems sufficient to prevent any undesirable disruption on the Kharif production front.”

He also notes that food production shows little consistent correlation with rainfall patterns, with even monsoon years sometimes providing strong output. It suggests that the key variable is the spatial distribution rather than the amount of rainfall.

The Northeast, Northwest and parts of the Southern Peninsula may still receive normal to above normal precipitation.

“Therefore, even if the monsoon approaches 92% of the LPA, food inflation impacts are likely to remain limited unless the rainfall deficit is concentrated in major kharif-producing belts,” the report said.

Overall, the report highlights that the more critical determinant of crop outcomes is the spatial distribution of rainfall rather than monsoon performance.

Growth continues but risks tilt upward

Despite these overlapping risks, SBI Research argues that India’s growth momentum remains broadly intact, fueled by domestic consumption and investment activity. Even if inflation risks move upward, GDP growth is expected to be in the range of 6.8% to 7.1%.

Fundamentally, the macro narrative is shifting to a more nuanced phase: Inflation is no longer driven by a single factor, but by a combination of weather cycles, global energy shocks and supply chain vulnerabilities.