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“El Niño” threatens to trigger waves of inflation due to rising commodity prices
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The Corner
El Niño can affect the global economy in many ways.
The Oceanic Niño Index (ONI) measures deviations in Pacific sea-surface temperatures from average levels and is the main indicator used to assess the intensity of El Niño and La Niña events.
However, our analysis also shows that the correlation improves significantly if the effects of energy prices are excluded from global food price indices.
If historical correlations were to hold, a very intense El Niño episode would mean that global food prices would double from current levels over the course of roughly the next year.
In fact, our ONI analysis overestimated the impact of El Niño on food prices in 2023, highlighting the difficulty of forecasting both weather conditions and agricultural yields.