IMF warns El Niño could fuel another inflation shock

what happened

Newsmetry API, citing an IMF warning, reports that extreme weather aggravated by the ongoing El Niño episode could further disrupt commodity markets. The effects may compound the burden of high fertilizer prices and disturb other climate-sensitive sectors, including transportation.

According to the IMF, previous El Niño episodes have generally pushed food and commodity prices higher while weighing on economic activity. The exposure is greatest in economies where food represents a large portion of the consumer basket, as well as among energy importers — particularly emerging and developing economies with limited fiscal room and external buffers.

A prolonged period of elevated commodity prices could widen current-account deficits and increase pressure on exchange rates. Higher inflation, meanwhile, may call for tighter monetary policy, adding to the drag on economic growth.

why it matters

For markets, the warning points to simultaneous pressure on commodity-importing economies, their currencies and domestic activity. The prospect of tighter policy also keeps inflation data important for interest-rate markets.

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