Super El Niño and Oil Supply Shocks Could Add 0.3 Points to Global Inflation
JPMorgan analysts warn that converging extreme weather and Middle East energy disruptions could add 0.3 percentage points to global headline inflation, posing fresh risks to both emerging and advanced economies.
A potential "super" El Niño weather event is colliding with supply-driven energy shocks, threatening to slow the global decline in inflation next year. JPMorgan warned on Friday that this combination could add approximately 0.3 percentage points to worldwide headline inflation.
The bank assigns an 81 percent probability that the current El Niño will strengthen into a very strong or super event by the end of the year. Furthermore, there is a 97 percent chance these conditions will persist into 2027.
Such extreme weather typically disrupts agricultural output across Latin America and Asia through droughts, excessive rainfall, and altered growing seasons. JPMorgan estimates these agricultural disruptions alone would lift global food inflation by roughly 0.7 percentage points at its peak.
This agricultural strain is now compounding with severe energy market pressures. Brent crude surpassed $100 a barrel this week following renewed conflict near the Strait of Hormuz and Houthi attacks on Red Sea tankers, threatening critical Gulf export routes.
Supply constraints are widening beyond the Middle East. Kazakhstan has initiated oil production cuts after drone strikes halted tanker loadings at the Caspian Pipeline Consortium terminal on the Black Sea, removing another vital source of internationally traded crude.
Diesel markets face even tighter conditions than crude oil. Middle Eastern refining capacity remains impaired by regional conflict, while Russian fuel exports are constrained by ongoing Ukrainian drone strikes on refineries, keeping global refining margins near record highs.
When $100 oil, tighter diesel supplies, and costly fertilizer converge with weather-damaged crops, the impact on consumers multiplies. JPMorgan projects that higher transportation and packaging costs could push the total increase in food inflation to between 1.3 and 1.5 percent.
Emerging economies will absorb the brunt of this inflationary shock. Nations such as India, Indonesia, Brazil, and Colombia are highly exposed because food represents a significantly larger share of household spending in these regions.
Advanced economies including the United States and Europe will not remain insulated from the fallout. Even if they avoid the most severe crop losses, they will still import elevated food costs driven by expensive fuel, fertilizer, and interconnected global commodity markets.
