Explained: How the El Niño weather phenomenon raises inflation, disrupts the economy

For 2026, Acche Din will remain a jumla that makes no sense, with literally no chance of the hope of change. Instead, Acche Din has remained a mirage so far, especially for the hardworking farmers and labourers toiling in the 40 degree heat with no way to escape the current heatwave.

And things are going to get worse. According to the Indian Meteorological Department (IMD), this year will see below normal rainfall which will remain 6% below normal. For India, this could already exacerbate the inflationary pressure we’re seeing currently, after fuel prices were raised due to the US-Iran war. 

The El Niño effect

Every few years, the Pacific Ocean sees an abnormal rise in temperatures due to the El Niño effect in the Pacific ocean which ultimately affects those who directly or indirectly depend on agriculture. 

With almost 60% of Indian farmers dependent on the monsoons, this warning of below normal rainfall cannot come at a worse time, after the US-Iran war has made everything expensive- from fertilizers to fruits, besides various essential commodities. 

In 2009, food inflation reached 13.54% between April and December that year due to the El Niño drought, with the weakest monsoon recorded on record. That year, India saw a 23% rainfall deficit, the worst ever witnessed.

Before the monsoon hit, the IMD had predicted a ‘near normal’ monsoon, but the prediction was way off the mark. Though weather forecasts can sometimes be unreliable, the fear this time remains real, as the heatwave has been severe so far.

What could go wrong?

In India, food items contribute nearly one third to one half of the Consumer Price Index (CPI). With the monsoon not expected to meet expectations this year, farmers, policymakers and the government may witness a host of challenges this year:

• The Kharif Crop Deficit: Primarily rain-fed crops like rice, pulses, sugar and oilseeds are expected to be directly impacted by the El Niño effect, with fears of a major global sugar deficit for the 2026-27 season.
• Perishable Volatility: Extreme heat and dry soil could accelerate vegetation rot, affecting everyday kitchen essential crops like tomatoes and onions. 
• The “Indefinite” Inflation: According to research from the Energy and Climate Intelligence Unit (ECIU), the inflation that could result from the El Niño drought could permanently affect retail grocery items, with margins taking the shock permanently, leaving consumer pockets stretched indefinitely.

Compounding the problem: Raised fuel prices

With the fuel prices now hiked by almost ₹4 a litre, inflationary pressures on food and fuel are expected to intensify across the entire food supply chain. This will include raising fuel overheads for farmers, besides increasing logistics and agricultural input costs.

India is already expected to pay double of what it did for urea from last year, even as food supply buffers still exist with the government holding about 602 lakh metric tonnes (LMT) of rice, wheat and pulses in reserve stock. This is enough for about 12-14 months of emergency supplies, even as the government will need to release them strategically based on the supply gaps in the market. 

The RBI’s impending dilemma

For the Reserve Bank of India (RBI) this development creates a difficult policy scenario, where food inflation and energy inflation surge simultaneously, affecting everything from savings to manufacturing overheads to a rise in loans sanctioned.

Everyone is watching the developments closely, with the government trying to fix these challenges before they get out of hand. For now, everyone is hoping that the events don’t worsen as they did in 2009.