Goods and services the super El Niño could make more expensive – and why

Become an Independent member to bookmark this article Want to bookmark your favourite articles and stories to read or reference later? Start your Independent Membership today. Join today Already a member? Log in This year’s El Niño, the natural weather phenomenon that drives variations in temperature and winds across the Pacific, has prompted the UK government to pledge £15 million to help vulnerable countries such as Malawi, Kenya and Zambia prepare for droughts, floods and food shortages.

But the UK’s economic response will go beyond international aid. The Bank of England has identified El Niño as one of the key factors that could increase food inflation in 2027. This connection between a climate pattern in the Pacific Ocean and supermarket prices (and possibly interest rates) in the UK is a clear demonstration of how extreme weather is an economic issue as well as an environmental one. Environmentally speaking, the effects of El Niño can be devastating, bringing severe drought to some regions and severe flooding to others.

And a stronger El Niño has a larger influence on global weather patterns than a weaker one. This year’s event, already the strongest on record, is expected to peak later this year, and could cause global economic problems if it has a negative effect on major agricultural producers or transport routes. open image in gallery The effects of El Niño can bring severe drought to some regions and severe flooding to others ( PA Wire ) Poor harvests can cause international agricultural prices to rise.

Higher energy costs can simultaneously make fertiliser, processing and transportation more expensive. The UK is particularly exposed to climate-related disruptions because of the international nature of its food supply (about 42% of its food is imported). But these effects are rarely immediate. Many food manufacturers and retailers use risk management techniques to limit their exposure to sudden changes in prices, which can initially shield consumers from international shocks.

The Bank of England made this point explicitly, saying the potential effects of El Niño are likely to emerge gradually, rather than causing widespread food shortages or dramatic price rises. And the central bank of Spain found that the effect of El Niño varies according to commodity, time period and agricultural policy. open image in gallery A global heat map illustrates areas of sea warming caused by the El Niño on 18 October ( NOAA/El Nino live ) For the most part, disasters with regard to food supply can be avoided with the right kind of human intervention.

Businesses adapt. Farmers change production decisions. Trade shifts towards alternative suppliers. Governments intervene. El Niño should therefore be viewed as a potential source of risk and volatility, rather than as a confident prediction that UK food prices must rise. Everything everywhere But what happens when several external shocks occur together? The Bank of England has considered this possibility too, warning that a strong El Niño alongside renewed energy disruption could put much greater pressure on UK food prices.

If extreme weather also affects major shipping routes, the effects on import prices could become stronger still. This is where a climate event potentially becomes a monetary policy problem, as central banks treat El Niño as a factor that may cause them to raise interest rates. About the author Narmin Nahidi is an Assistant Professor in Finance at the University of Exeter. This article is republished from The Conversation under a Creative Commons licence.

Read the original article . In a recent meeting, the Bank of England’s monetary policy committee identified severe El Niño conditions as one possible source of additional pressure on agricultural prices, alongside energy markets and other global supply risks. And this perhaps explains the thinking behind the UK government’s plan to help countries prepare for El Niño. The £15 million pledge announced in September 2026 is based on the idea of “anticipatory action”: releasing money before a predictable emergency rather than waiting until the economic damage has occurred.

The government says around 35% of humanitarian shocks can be predicted in advance, while less than 1% of global humanitarian funding currently goes towards anticipatory action. Weather or not There is a broader financial principle at work here. If climate forecasts contain economically useful information, financial decisions can respond before losses actually occur. So food importers can reconsider commodity and currency strategies to guard against shocks.

Banks can incorporate weather-related supply disruption into their financial evaluations, and companies can stress-test supply chains against simultaneous commodity, energy and transportation shocks. open image in gallery Many food manufacturers and retailers use risk management techniques to limit their exposure to sudden changes in prices ( Getty ) Governments can connect climate forecasting more closely with food security and planning for economic resilience.

And while they may not be able to predict exactly what El Niño will do to the price of a shopping basket, they can certainly act in a way that recognises the fact that information about future weather has financial value. The UK government has shown that it is using weather forecasts to release humanitarian finance before disasters happen overseas. Those forecasts no longer provide key information just for meteorologists, farmers and fishing boats.

Increasingly, they contain vital financial data.