Heatwaves set to hit food supply chains
Europe’s hottest, driest weather in decades is part of a ‘Super El Nino’ — a natural weather pattern. This could push food prices higher. Jefferies says the meteorological phenomenon will likely raise inflation. The rise could be 0.5 to 1 percentage point next year. This will complicate the already difficult task of central banks. The task is to curb rising prices.
According to the investment bank, the pattern has already led to poor crop yields and supply shocks. Retailers and farmers are sounding alarms, noting that this year’s harvest was one of the worst on record. With food making up around 13% of household spending in Europe, even modest price jumps could ripple through the economy.
Weather, war and rising prices
Jefferies chief European economist Mohit Kumar said the impact of El Nino could be worsened. The ongoing tensions between the US and Iran could make it worse. These tensions have already pushed up commodity prices. “In the context of already upward pressure on commodity prices due to the US Iran war,” Kumar wrote. He added, “this effect is likely to be higher.” This is in the firm’s analysis.
This warning adds to the growing concerns facing the Bank of England, which has struggled to bring inflation down to its 2% target. The bank had expected annual price increases to fall to 2% later this year, but geopolitical tensions are making those projections more fragile.
Central bankers take note
In recent policy discussions, two Bank of England members flagged El Nino as a potential risk. Deputy Governor Dave Ramsden said the weather could “add to inflationary pressures.” While external member Megan Greene called it a “looming supply risk.” This shows the Bank is preparing for more than just economic factors. It does this when setting interest rates.