The acceleration of El Niño could trigger a rise in agricultural prices and inflation.

Michael Ferrari, Vice President and Head of Research at Moby, founder of Atlas Research Innovations, and Senior Partner at AlphaGeo, warns of the need to revise inflation forecasts. The new MLR-ARX model shows that warming in the equatorial Pacific Ocean is occurring rapidly. While the temperature anomaly was +1.40°C in July, it could reach +2.05°C by the end of September. Such developments could lead to earlier biological stress in crops and precipitation anomalies in South America and West Africa.

Markets for sugar, cocoa, palm oil, rice, and coffee are at risk. The impact of the climate phenomenon will depend on how precisely the periods of adverse conditions coincide with key stages of plant development. Historically, such weather conditions are accompanied by a deficit of rainfall in Southeast Asia, India, Australia, and West Africa, as well as excessive rains in the southern part of South America.

Logistical constraints could become an additional factor of pressure on food costs. Drought in Central and northern South America could lower water levels in the Panama Canal, limiting throughput for maritime vessels. This will require the restructuring of routes or a reduction in the volume of transported cargo, which will inevitably increase freight costs.

Furthermore, reduced hydroelectric power generation due to drought in several countries is forcing power grids to switch to thermal generation using imported fuel. Rising energy costs combined with the increasing price of food create a risk of a macroeconomic shock. For the governments of developing countries, this means a possible increase in budget deficits due to the expansion of subsidy programs, and for central banks, it means the need to revise plans for lowering interest rates in favor of a tighter policy.

The main risk lies in the fact that the market may not have enough time to price in the consequences of El Niño if the climate signal manifests faster than the general expert consensus predicts.