El Nino's Inflationary Threat: Food Prices Set to Soar

The extreme 'Super El Nino' weather event has been causing record temperatures across Europe, and its impact on inflation is likely to be significant. According to an analysis by Jefferies, the harsh weather will pose an inflationary threat next year, potentially adding a full percentage point to inflation in the UK and Europe.

The severe weather conditions have already led to fires across Europe this year, and food prices are expected to rise by between 5% and 9% across the UK and Europe. This is particularly concerning as food and related products account for around 13% of the consumer basket in Europe.

Jefferies' chief European economist Mohit Kumar warned that 'In the context of already upward pressure on commodity prices due to the US Iran war, this effect is likely to be higher.'

The Bank of England has been monitoring the situation closely, with two members of its rate-setting Monetary Policy Committee raising concerns about the potential impact of El Nino on inflation. Deputy governor Dave Ramsden said that 'El Nino may add to inflationary pressures', while external member Megan Greene warned of a looming 'supply risk'.