El Nino-Driven Food Price Hike Threatens Inflation Targets
The 'Super El Nino' weather phenomenon is expected to have a significant impact on inflation in Europe and the UK, according to an analysis by investment bank Jefferies.
The extreme heat and dry spell caused by El Nino has led to crop failures and food price increases across the continent. The Bank of England's efforts to control inflation are being hampered by this development, as economists had previously predicted that prices would ease later this year.
Achieving its 2% target will be challenging for the central bank, given the forecasted increase in food prices, which could rise between 5-9% across the UK and Europe. Jefferies' chief European economist, Mohit Kumar, warns that the impact of El Nino on inflation 'is likely to be higher' due to already upward pressure on commodity prices.
The severe weather has sparked warnings from Britain's retailers and farmers about food prices, with some describing this year's crop yield as the worst they have known. The Bank of England is taking note of the meteorological event, with two members of its rate-setting Monetary Policy Committee mentioning it as a factor to monitor ahead of future interest rate decisions.