Rising temperatures have a stronger correlation with food inflation than rains

Source: The post rising temperatures have a stronger correlation with food inflation than rains has been created, based on the article “Why heat, not rain, matters more for inflation and rural demand” published in “Indian Express” on 5th October is 2024

UPSC Syllabus Topic: GS Paper 3- Economy- inflation And Environment- climate change

Context: The article explains that rising temperatures are becoming a better predictor of food inflation in India than rainfall or reservoir levels. As temperatures increase, crop yields drop, leading to higher food prices and inflation, affecting both crops and animal products.

For detailed information on India’s food inflation read Article 1, Article 2

How do temperatures impact food inflation?

1. Rising temperatures have a stronger correlation with food inflation than rains or reservoir levels in India.
2. Higher temperatures lower crop yields, increasing food prices. For example, a temperature rise of 2.5-4.9°C could reduce wheat yields by 41-52% and rice yields by 32-40%.
3. The March 2022 heatwave reduced the sugarcane yield by 30%, affecting prices of vegetables and oilseeds.
4. Perishable crops like vegetables, harvested every 2-3 months, show a rising sensitivity to heat. Their price correlation with temperatures increased from 20% to 60% over a decade.
5. Durable crops like cereals, less sensitive historically, now show a correlation rise from 10% to 45%.
6. High temperatures also harm livestock, leading to higher prices for dairy, poultry, and fish products.
7. Temperature data significantly improves food inflation forecasting.

What roles do reservoir levels and rains play compared to temperatures?

1. Reservoir levels and rainfall are becoming less important in predicting food inflation compared to temperatures.
2. With improved irrigation facilities, the impact of low rains has reduced, especially in north-western India, the country’s food bowl.
3. Temperatures and reservoir levels have a 50% correlation, indicating that temperature data captures much of the information from reservoir levels.
4. In food inflation models, when temperatures are included and the reservoir variable is removed, the model’s predictive power improves, increasing its R-squared value from 80% to 90%.

What’s the Current Outlook for Food Inflation?

1. With temperatures cooling after a heatwave earlier in 2024, food inflation may decrease.
2. If temperatures remain lower due to La Niña, inflation could drop to the RBI’s target of 4% by March 2025.
3. However, rising temperatures could pose long-term challenges for inflation management.

Question for practice:

Evaluate how rising temperatures compared to rainfall and reservoir levels have become a more significant predictor of food inflation in India.