Rain, shine and rising prices: climate-related drivers of food inflation in India

The growing frequency and intensity of heat stress, excess rainfall, floods and storms may be reshaping the structure of food inflation. These trends challenge a long-standing assumption about inflation targeting: that supply shocks are temporary, idiosyncratic and short-lived. In India and other climate-vulnerable economies, central banks may find themselves managing a structural inflation environment with tools designed for a cyclical one. This policy brief examines the mechanisms through which physical climate impacts transmit into rises in food prices at the subnational level in India, and then into headline and core inflation. The authors provide an empirical foundation for changes to forecasting frameworks, communication and the inflation-targeting architecture that the Reserve Bank of India (RBI) is already beginning to consider.