Energy Volatility and El Niño Threaten to Resurrect Global Inflation

The bank places an 81% probability on the current climate pattern intensifying into a super El Niño by year-end, with conditions likely persisting through 2027. While climate-driven disruptions to harvests in Asia and Latin America typically lift food inflation by 0.7 percentage points, the addition of $100-a-barrel oil and strained diesel supplies could nearly double that impact.

Brent crude surged past $100 this week as conflict in the Red Sea and Strait of Hormuz choked vital export routes. Simultaneous production cuts in Kazakhstan following terminal attacks have further tightened global supply. Because diesel prices remain tethered to strained refining capacity in the Middle East and restricted Russian exports, the cost of moving goods and producing fertilizer continues to climb. Emerging markets like India, Indonesia, Brazil, and Colombia face the deepest vulnerability due to the high proportion of food spending in household budgets, though the United States and Europe remain exposed through imported commodity costs.