El Niño: A climate pattern characterized by warmer sea surface temperatures in the central and eastern Pacific Ocean, occurring every few years.
Impact of El Niño on Inflation in India:
- Effects on Food Prices: Droughts caused by El Niño can disrupt agricultural production, resulting in higher food prices. Food items account for 39.06% of the Consumer Price Index (CPI), influences the Reserve Bank of India’s price gauge. Thus, rising food prices significantly contribute to overall inflation.
- Effects on Energy Prices: El Niño can trigger extreme weather events like cyclones and typhoons, disrupting energy production and transportation. This disruption can lead to higher energy prices, exacerbating inflationary pressures.
Policy Response to Mitigate Impact:
- Subsidies for Farmers: To help farmers cope with drought conditions. The government can provide subsidies, ensuring their ability to sustain agricultural production during El Niño-induced droughts.
- Strategic Release of Oil: The government can stabilize energy prices by releasing oil reserves strategically, mitigating the impact of El Niño-induced disruptions on energy production.
The intensity of El Niño events and the implemented government policies play crucial roles in determining the actual impact on inflation in India.
