JPMorgan warns super El Niño and oil shock could prop up global inflation

JPMorgan warns super El Niño and oil shock could prop up global inflation

LONDON, July 24 (Reuters) – A rapidly intensifying El Niño ‌weather pattern combined with higher energy prices could add 0.3 percentage points to global inflation next year, hitting emerging markets particularly hard, JPMorgan economists said in a report on Friday.

Forecasts currently point to an 81% probability that the current ​El Niño episode develops into a “very strong” or “super” El Niño by the end of the ​year and a 97% chance that the conditions persist into next year.

Such an ⁠event would rank among the strongest seen in recent decades and raise the risk of disruptions to ​global food production and supply chains.

JPMorgan estimated that a super El Niño on its own would raise global ​food inflation by about 0.7 percentage points at its peak, with the biggest impact typically occurring four to eight months after the onset of the weather shock.

However, when combined with the Iran war-driven jump in energy prices, which has raised ​costs of diesel, fertiliser and food packaging, the effect on global food inflation could roughly double to ​around 1.3-1.5 percentage points.

Blackstone, Donerail among final bidders for yacht retailer MarineMax, sources say

“The resulting jump in food inflation to a 5% annualised rate in 1H27 would add 0.6 ‌percentage ⁠points to global headline inflation, slowing next year’s expected inflation decline by 0.3 percentage points for the full year,” JPMorgan’s analysts said.

EMERGING MARKETS TO BEAR THE BRUNT

Emerging markets in Asia and Latin America would bear the brunt of the impact because food carries a larger weight in consumer baskets and agriculture is ​generally more weather-sensitive.

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

European Central Bank Indicates More Interest Rate Increases May Be Needed

By contrast, direct El Niño-related food inflation impacts in Europe ​and other advanced economies are expected to be smaller. Instead, higher energy ​costs are likely ⁠to be the main driver of higher food prices in those countries.