Super El Niño threatens Europe with prolonged food inflation
A historically strong El Niño weather cycle is compounding supply disruptions from the Iran war, threatening to keep eurozone food prices elevated and interest rates higher for years.
The US National Oceanic and Atmospheric Administration confirmed last month that a “super” El Niño is taking hold in the Pacific, with a 63% chance of sea surface temperatures exceeding 2C above normal later this year. The 2026-27 cycle arrives as the Iran war pushes global food prices to their highest level in three years, creating what economists describe as “two shocks at once”.
For European consumers and central bankers, the weather event threatens to make inflation stickier for longer. Goldman Sachs projects the extreme weather will drive a 15.8% surge in global food commodity prices, translating to a 1.3% increase in food prices across the eurozone. That prospect is rattling markets with concerns that central banks will be forced to keep interest rates elevated to combat renewed price pressures.
“El Niño puts ‘climateflation’ back on the agenda,” analysts at UniCredit wrote. “Europe’s recent heatwaves are a reminder that the climate baseline is already shifting. El Niño could add a new layer of pressure later this year, as it amplifies the effects of global warming.”
Unlike typical geopolitical shocks, the full inflationary impact of this weather pattern will be slow to materialise. Goldman Sachs estimates the consequences could take until the second half of 2028 to be fully realised. This delay is driven by the differing planting and harvesting cycles of various crops, alongside logistical challenges such as falling water levels in key shipping canals and rivers.
The disruption to global agriculture is already visible. Goldman Sachs analysts noted that a drier monsoon in India has left some regions with only 25% of their usual rainfall and parts of central India with just 50%, threatening supplies of wheat, rice, and sugar cane. Droughts in south-east Asia also risk reducing palm oil supplies, while warmer, wetter conditions elsewhere could exacerbate the spread of crop diseases.
Analysts warn the global food system is uniquely vulnerable to this compound shock. UBS noted that while El Niño creates regional winners and losers, the ongoing conflict has already drained supply buffers. “Even modest supply disruptions could trigger large price moves than historical patterns could imply,” the UBS analysts said.
In a worst-case scenario, UniCredit estimates the extreme weather could cause a 14.3% hit to global agricultural production, equivalent to $342bn in lost output. Price shocks for core commodities could reach 10% to 50%, while the most exposed crops like rice, palm oil, sugar and coffee could rise by 50% to 100% or more. “The food system enters the second half of 2026 with buffers, but with little margin for error,” UniCredit warned.
