El Niño, Monsoon Deficit, and the Inflation Risk Building Into 2H27

Mumbai | 10 June 2026 

India’s consumer economy has held up through the first wave of geopolitical disruption. A quieter risk is now building on a second front, driven by a weakening monsoon and broadening cost-push inflation that may prove harder to absorb. 

Both the India Meteorological Department and Skymet have forecast El Niño conditions for the current monsoon season. IMD expects total rainfall at 90% of the long-period average, signalling a deficient season, while Skymet puts the figure slightly higher at 94% of LPA. June rainfall is projected at 92% of LPA, with the outlook deteriorating further into August. Deficit risk is concentrated in North, West, and Central India. 

What El Niño does to food prices 

El Niño does not automatically translate into a food price crisis. Improved irrigation coverage has steadily reduced the weather event’s impact on agricultural output over the decades. Kharif crop output fell 22.2% during the strong El Niño year of FY2003, but declined just 2.3% in FY16 and was broadly flat in FY24 under similar conditions. 

The difference this time is the backdrop. Water reservoir levels are running approximately 10% below year-ago levels, and an extended heat wave has added to stress on standing crops. Years in which El Niño coincided with external shocks, specifically FY10 and FY13, saw inflation rise sharply. The current environment, with global supply chains disrupted and crude-linked input costs elevated, closely mirrors those episodes. 

A low inflation base makes the arithmetic worse 

India recorded negative food inflation through much of mid-2025. That low base means any uptick in food prices from here will register as a disproportionately large year-on-year move in headline CPI. The base effect alone could push inflation optics higher even before El Niño’s agricultural impact fully materialises. 

The RBI has already revised its CPI forecast upward from 4.6% to 5.1% for FY27, with quarterly estimates of 4.2%, 5.1%, 5.9%, and 5.4% across the four quarters. The central bank acknowledged that the current inflation outlook is being shaped primarily by supply-side and imported factors rather than excess domestic demand. 

What it means for rates and growth 

The RBI has separately cut its GDP growth forecast from 6.9% to 6.6% for the year, a signal that policymakers are already pricing in some demand softening. With the Q3FY27 CPI estimate of 5.9% sitting close to the RBI’s upper tolerance band of 6%, the risk of repo rate action in 2H27 is no longer hypothetical. The full effect of higher fuel costs, food price inflation, and El Niño-related agricultural stress on consumption demand is still working its way through the economy, and Q2FY27 may be when it finally shows up in the numbers. For a detailed breakdown of India’s market outlook, read the full report  https://plindia.com/ResReport/IndiaStrategy-9-6-26-PL.pdf 

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