The Reserve Bank of India recently cut its growth forecast for financial year 2027 and highlighted the inflationary pressures owing to the West Asia conflict, while also discussing the risks posed by El Nino and weather uncertainties thus exerting more pressure on the economy.
While the dangers of an impending El Nino impacting growth rates have been looming since last year and may continue up until early 2027, it is only recently that El Nino-related events have become a part of day-to-day public policy conversation thus urging policy makers to seriously think of urgent climate mitigation and adaptation measures that focus on combating heat waves and climate-related stresses that continually risk the growth of developing countries. The latest forecast by the World Meteorological Organization, indicates an 80 per cent likelihood of an El Nino event during June-August 2026.
However, what merits attention at this point in time while we are sitting mid-year are two additional interlinked challenges: stagflationary pressures and shrinkflation in the wake of a growing climate crisis.
Rising costs of LPG and cooking oil ever since the geopolitical tensions in West Asia as well as the impact on other sectors of the economy, especially chemicals and petrochemicals, have been a by-product of the recent geo-political tensions. Street vendors, restaurant and hotel owners, and average households are facing the brunt of high LPG costs with small businesses being impacted the most. There are reports that palm oil supply chains might be severely disrupted in the longer run because of high demand, thus predominantly affecting developing countries that depend on it.
The world’s most-traded soft commodities other than crude and oil, for instance, like coffee are impacted by El Nino. While in 2024-2025, heat and drought-like conditions affected coffee production in Brazil, incidentally also the country hosting COP 30 in Belem in 2025, this year there has been a record production of coffee in the country. While countries like India experience hotter conditions, parts of the Northern Hemisphere, in addition to West Asia, may witness more rainfall depending on the intensity of the El Nino phenomenon off the coast of Peru. For India, it is being predicted that conditions similar to those seen in 2015 could recur.
In addition to the ongoing global climate and conflict crisis, many parts of the global economy have reportedly been witnessing stagflationary pressures on one hand and day-to-day shrinkflation on the other. ‘Stagflation’ refers to periods of slow economic growth, high inflation, and low employment opportunities. A few weeks ago, while Brent crude was hovering around US$95–100 per barrel, the national average price of gasoline in the United States was also around US$4.25 per gallon, amid growing stagflationary concerns as inflationary pressures persisted and job growth remained slow. The ripple effects of these developments may linger longer than imagined, with significant consequences for developing countries. India’s unemployment rate for instance in April this year was reported at 5.2 per cent, and it stood at 4.3 per cent in the US. Recently, Walmart (the largest private sector organisation in the US) laid off 1,000 workers amid a strong industry-AI push. Experts are already likening this to a 1970s-like “stagflationary-lite” phenomenon following the oil crisis in the same decade.
In addition to these macro issues that impact the day-to-day purchasing power of people, shrinkflation seems to be a strategy FMCG companies have started to use rapidly after the COVID-19 pandemic. Social media channels are replete with videos of influencers from the US discussing how grocery prices and food inflation are affecting their daily expenses with smaller quantities than ever before. ‘Shrinkflation’ basically refers to reduced quantity of a product priced at the same cost. For example, people may buy a pack of biscuits containing lesser quantity or a smaller bar of soap at the same price as before, thus qualifying it as an unethical and deceptive marketing strategy. But it is the informal sector workers that shrinkflation seems to hit the most, as products priced at Rs 5, 10, 15 are consumed more in the rural and urban poor markets. More so, people living hand-to-mouth often purchase small quantities of sugar, oil, tea, biscuit, and soap.
Shrinkflation, and not just inflation, along with stagflationary pressures coupled with an unsparing El Nino-induced heat this summer, might therefore impact the most vulnerable groups more severely. There are warnings about how crude-price volatility have somewhat pushed the costs of agricultural inputs especially fertilisers and pesticides thus impacting farmers. While the discussion on organic agriculture is important, one must also note the challenges that organic farming presents to small and marginal farmers, particularly the longer time required for yields without proper training and advocacy. Around 60 per cent of India’s farmland is rain-fed, and the current El Nino prediction will have consequences for the upcoming Kharif season, with rural and the urban poor being hit the hardest as the economy navigates several of these challenges.
As UN Secretary-General António Guterres said in a statement, “El Nino conditions will pour fuel on the fire of a warming world”, countries like India must come up with a twin strategy addressing the concerns of economy and ecology especially for its most vulnerable populations. While India has historically placed food security at the centre of its public policy, agrarian distress, water stress, and employment challenges among both the rural and urban poor require greater decentralised attention. Gig economy workers who spend long hours outdoors in an unsparing heat, without adequate social protection measures, are at particularly high risk from all these de-stabilising macro-economic challenges: climate change, stagflation, and shrinkflation. According to Niti Aayog, India’s gig economy workers are projected to reach 23.5 million by 2030.
Recent upward movement of the Aviation Turbine Fuel (ATF) also present challenges for the global tourism economy. For instance, in April 2026 the international passenger traffic of Indian carriers came under severe pressure at around 1.8 million passengers, a decline of 39 per cent year-on-year. Small coastal economies depending heavily on tourism might see consequences for its vulnerable populations such as fishing communities, small tourism businesses, and farmers.
The recent measures undertaken by the Delhi government like instituting the “cooling zones” where ORS, seating and cooling facilities are provided, are commendable, even if they offer only temporary respite. Long-term measures like investment in climate-resilient and climate-smart agriculture, the use of public transport, conservation of electricity, heat-action plans, and incentivising usage of renewable energy sources are small but important steps that households capable of doing so should embrace. The urban heat-island effect is already causing a devastating impact on our cities, making many of them increasingly unliveable. The UN predicts that 64 per cent of the world population will be living in cities by 2050 along with reporting earlier this year how the world is entering a stage of “global water bankruptcy” thus hinting at urban pressures on natural resources on already overburdened cities, resulting in climate migration and energy poverty, both of which contribute to climate and economic injustices impacting elderly, persons with disabilities, women, and children - the most.
Most importantly for public policy to be truly inclusive, a thought must also be spared for livestock, stray animals, and birds that struggle with anthropogenic climate stresses with no fault of their own. The triple squeeze of shrinkflation, lesser job opportunities, and climate change is thus a warning that economic and climate challenges can no longer be looked at separately by governments.
Swasti Pachauri is an academic and a public policy professional
Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth