JPMorgan warns 'super' El Niño, oil shock could push global inflation higher

LONDON: A rapidly intensifying El Niño weather pattern, combined with rising energy prices, could add 0.3 percentage points to global inflation next year, with emerging markets facing the sharpest impact, JPMorgan economists said in a report.

According to current forecasts, there is an 81% probability that the ongoing El Niño episode will develop into a "very strong" or "super" El Niño by the end of the year, and a 97% chance that these conditions will persist into next year. Such an event would rank among the strongest in recent decades and heighten the risk of disruption to global food production and supply chains.

JPMorgan estimated that a super El Niño alone would push global food inflation up by around 0.7 percentage points at its peak, with the strongest impact typically felt four to eight months after the onset of the weather event.

The effect could roughly double when combined with the surge in energy prices driven by the Iran war, which has already pushed up the cost of diesel, fertiliser and food packaging. Together, the two factors could lift global food inflation by 1.3 to 1.5 percentage points, the bank said.

JPMorgan's analysts said the resulting rise in food inflation to a 5% annualised rate in the first half of 2027 would add 0.6 percentage points to global headline inflation, slowing next year's expected decline in inflation by 0.3 percentage points for the full year.

Emerging markets to bear the brunt

The report said emerging markets in Asia and Latin America would be hit hardest, since food carries a larger weight in consumer spending baskets in these regions and agriculture tends to be more sensitive to weather conditions.

India, Indonesia, Brazil and Colombia were identified as particularly exposed, while Taiwan and South Korea were also flagged as vulnerable to food-price shocks, the analysts added.

In contrast, the direct impact of El Niño-related food inflation is expected to be smaller in Europe and other advanced economies, where higher energy costs are likely to be the main driver of rising food prices instead.

JPMorgan noted that current conditions are more favourable than during previous major El Niño episodes, with global grain inventories at adequate levels, rice stocks in Asia relatively healthy, and food inflation currently low.

Even so, the bank said the combination of a powerful El Niño and sustained high energy prices could generate a significant food-price shock and make food inflation an increasingly important factor driving inflation divergence between countries and regions.