A single adverse weather event such as El Niño may not be a threat to macroeconomic stability, RBI Bulletin
One such adverse weather event El Nino It does not necessarily lead to less rainfall or higher food price inflation, according to an article published in the Reserve Bank of India’s latest monthly bulletin.
The Indian Ocean Dipole Oscillation (IOD) often interacts with El Niño or La Niña to determine the actual rainfall pattern and consequent inflation in food prices, according to RBI officials Saurabh Ghosh and Kaustup.
Our experimental results indicate that the relationship between precipitation and inflation is nonlinear and depends on several cofactors.
“Our data analysis highlights that a single adverse weather event (for example, El Niño) may not pose a threat to macroeconomic stability, but we need to be careful about other factors, such as IOD oscillations, local supply chain disruptions caused by extreme weather events, and global prices. global commodities.”
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Officials noted that there were years when, despite an El Niño, rainfall was close to normal and inflation remained moderate.
Their analysis indicates that it is the IOD that most often interacts with El Niño or La Niña to determine actual precipitation. This is evident because the mean inflation was higher during negative IOD years than in either neutral or positive IOD years.
La Niña years also experienced a wide range of agricultural growth and inflation, depending on the state of the corresponding IOD oscillation and other external factors.
Moreover, analysis by RBI officials indicates that while higher rainfall leads to higher agricultural growth (in both spring and autumn seasons), the relationship of inflation to rainfall is not linear. This may be due to the influence of precipitation on the dynamics of food magnification through agricultural growth.
At the same time, other external factors, such as international commodity prices, also influence the dynamics of growth and inflation.