El Nino 2026-27: India monsoon risk and FY27 CPI

What the latest forecasts are signalling

Climate models are pointing to a strong El Nino developing in late 2026 and potentially persisting into 2027, a shift that could alter global weather patterns and raise India-specific risks. Projections cited in recent updates indicate sea surface temperatures in the central and eastern Pacific may exceed 2°C anomalies. Such warming is consistent with the conditions that typically amplify El Nino’s influence on rainfall and temperature extremes.

For India, the key worry is the southwest monsoon. El Nino has historically been associated with weaker monsoons and below-normal rainfall, although the relationship is not absolute. When the event is strong, the probability of drought conditions and heatwaves tends to rise, with direct implications for agriculture, reservoirs, and food supply.

NOAA confirms El Nino emergence

On 11 June, the US National Oceanic and Atmospheric Administration (NOAA) announced the emergence of El Nino conditions in the equatorial Pacific. NOAA’s guidance indicated the event could strengthen through the year, with a peak around November to December. The same forecast window suggested persistence until February to March 2027.

These timelines matter because India’s kharif sowing and monsoon-driven water replenishment are sensitive to rainfall distribution as much as to aggregate rainfall. A prolonged El Nino episode into 2027 could also keep global weather risks elevated beyond a single season.

WMO probabilities raise confidence in the signal

The World Meteorological Organization (WMO) has issued a warning on the likely return of a strong El Nino, highlighting that climate change can amplify its effects and associated extremes. The reported probability set includes an 80% chance of El Nino developing between June and August 2026. The probability of conditions persisting until at least November was put at more than 90%.

WMO also reiterated the basic cycle of El Nino, which tends to occur every 2 to 7 years when weakening trade winds allow warmer-than-average waters to build in the eastern Pacific. The current concern is not just the return of the phenomenon, but the possibility of a stronger episode and longer persistence.

Why India’s monsoon is in focus

El Nino years have often coincided with weaker monsoons in India, bringing the risk of below-normal rainfall. The article context also flags droughts, heatwaves, and altered rainfall patterns as likely impacts when the event is strong. Even when overall rainfall is not sharply deficient, an uneven distribution can affect sowing decisions, crop stress, and output.

The risk is particularly relevant because a weak monsoon can tighten supplies of key food items. The text flags concerns for pulses, vegetables, and oilseeds in a scenario of lower crop output and weather-driven disruption.

Bank of Baroda flags inflation risks for FY27

Bank of Baroda (BoB), in a research report, warned that a rising likelihood of an El Nino event could impact food production and supply chains, potentially creating renewed inflationary pressures. The report stated that any disruption in production could lift prices for essential commodities and add to inflation.

BoB economist Dipanwita Mazumdar projected CPI-based inflation is likely to settle in the range of 5.2% to 5.5% during FY27. The report also cautioned that food inflation could stay elevated due to a combined impact of higher transportation costs and weather-related uncertainties.

Fuel, freight, and input costs as compounding factors

Beyond crops, the article context links weather shocks to higher fuel and freight costs, which can feed into food inflation through logistics and distribution channels. BoB’s report specifically highlighted transportation costs as a near-term risk factor alongside weather uncertainty.

The same research noted an upside risk to core inflation if companies pass through rising input costs to consumers amid stagnant demand. It also added that, factoring in some El Nino impact and the possibility of average crude prices remaining at $10 to $100 per barrel, CPI inflation is expected to be 5.2% to 5.5% in FY27.

What it could mean for markets and listed sectors

For equity markets, the immediate sensitivity typically shows up in sectors linked to rural demand and food prices, especially when the probability of monsoon disruption rises. A weak monsoon can affect agricultural incomes and consumption patterns, while higher food inflation can complicate the macro backdrop for rate-sensitive stocks.

Investors may also track companies exposed to freight costs and energy inputs because the report explicitly highlights transportation and crude price assumptions as inflation risks. Separately, increased irrigation requirements and higher cooling demand are cited as pressures that can add stress to energy systems, which can matter for power demand patterns and operating costs across industries.

Longer-run economic cost flagged by a climate economist

The article context also cites an estimate from climate economist Justin S. Mankin of Dartmouth College that the forthcoming El Nino episode could impose cumulative losses exceeding US$1 trillion on the Indian economy by 2032. The mechanism described links reduced agricultural productivity to food inflation, and higher irrigation and cooling demand to added stress on energy systems.

This estimate is not a near-term forecast for markets, but it frames how large and persistent climate-linked shocks can compound over time if weather volatility remains elevated.

Key numbers and timelines at a glance

Conclusion

The latest signals from NOAA and WMO point to a high-probability El Nino developing in 2026, strengthening toward late-year, and persisting into early 2027. For India, that raises the risk of a weaker monsoon and weather-driven volatility that can affect crops, supply chains, and inflation. Bank of Baroda’s FY27 inflation projection of 5.2% to 5.5% explicitly factors in weather uncertainty and elevated crude oil assumptions. The next major data points for markets will be updates to El Nino intensity forecasts and how India’s rainfall distribution evolves as the monsoon progresses.