The West Pacific has swung back into an El Niño phase, bringing nearly unprecedented heat to vast swaths of the globe.
Some of El Niño’s impacts are immediately apparent, or will be in the months to come: blistering high temps, of course, but also major amounts of rainfall for some, and extreme drought for others. Unfortunately, those weather patterns don’t just come and go. They also have a major impact on agricultural production, from the plains of the American Midwest to the rice paddies of Southeast Asia — and, as a result, a huge influence on the global economy.
As Reuters observes, El Niño conditions will likely have an inflationary effect on the economies of developing countries, as the ensuing weather flips typical rainfall totals on their head.
In Asia, for example, rainfall totals are likely to be much lower than usual, a situation expected to wreak havoc on countries like India and Vietnam. With India’s weather bureau projecting the driest conditions in over a decade, this year’s rice harvest is at risk. Lower rice yields would tighten supply, raising food prices for millions.
Central banks, in turn, could be forced to keep borrowing rates high, in order to keep rising prices in check.
“People are forecasting rate hikes for the second half of the year, especially for the South Asian countries, which are kind of the most impacted by El Niño such as India, Indonesia, Vietnam, Thailand,” equity portfolio manager at Allspring Global Investments Gary Tan told Reuters. “El Niño is just going to make inflation more sticky.”
A similar situation is possible across Africa, Reuters warns, as agricultural sectors in countries like Kenya are particularly susceptible to weather disruptions.
In today’s incredibly connected economy, in other words, it doesn’t take a butterfly flapping its wings to make waves half a world a way — just some warm ocean water in the middle of the Pacific.
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