May 3, 2015
Abstract: Though there is an obvious relationship between rainfall, food production and prices, a simplistic view that a deficient monsoon necessarily implies higher inflation and negative macroeconomic effects is challenged. The linkages between the monsoon and the economy can be summarized as follows:
- The monsoon needs to be significantly below normal for the entire season for food prices to accelerate across the board;
- Timing and geographic spread of rainfall are the critical determinants of outcomes;
- The adverse impact of poor monsoon on aggregate rural demand is limited if only the least affluent areas (which are usually also most rain-dependent) are affected; and
- Even when inflation and aggregate demand are only moderately affected, safety nets for the hardest hit rural areas are recommended.
Keywords: monsoon; agriculture policy; food policy; food inflation