Super El Niño and Oil Shock Collide to Threaten Global Inflation

The world is bracing for a potentially devastating combination of a super El Niño and an oil supply shock, which could slow down global inflation declines next year. According to JPMorgan, the odds of a 'very strong' or 'super' El Niño event by the end of the year are 81%, with a 97% probability that conditions will persist into 2027.

A super El Niño typically disrupts agricultural production across Asia and Latin America through droughts, excessive rainfall, and shifting growing seasons. JPMorgan estimates that this would lift global food inflation by about 0.7 percentage points at its peak.

The oil market is already supplying the second half of the equation, with Brent crude climbing above $100 a barrel due to renewed fighting around the Strait of Hormuz and Houthi attacks on tankers in the Red Sea.

JPMorgan expects emerging markets to absorb most of the inflation shock because food accounts for a larger share of household spending. India, Indonesia, Brazil, and Colombia rank among the most exposed economies.