Bank of America: Severe El Niño Could Spike Colombia's Inflation by 1.8 pp

BofA Maps El Niño's Inflation Shock Across Latin America

Bank of America has published a new model that quantifies how El Niño could push up consumer prices across Latin America. The report, based on a vector autoregression analysis of quarterly data from 2004 to 2023, finds that a severe weather event – a one-standard-deviation intensity shock – would add 1.8 percentage points to Colombia’s headline inflation. A moderate episode would raise it by 0.9 percentage points.

Peru ranks second in the region for vulnerability. The same model projects that a severe El Niño would lift Peruvian inflation by 0.8 percentage points, with food prices alone jumping 1.2%. In Brazil, food inflation is expected to rise 1.3%, though the link to general inflation is statistically weaker. By contrast, the analysis concludes that Chile and Mexico would see no statistically significant impact on their consumer price indices.

The transmission channels in Colombia are twofold. Food prices – the main driver – would climb an estimated 1.4% under a moderate shock, while energy tariffs would increase by around 1.3% as shifts in temperature and rainfall disrupt electricity supply and demand. BofA specifically notes that even if El Niño begins to weaken in early 2027, Colombia may not see a real hydrological normalisation until mid-2027.

The report also spells out crop risks. In Brazil, the disruption of rains during the planting window for soy and maize could cut the 2026–2027 maize harvest by 10% year-on-year and reduce sugar output by 5% because of lower sucrose content. Argentina could see roughly 10 million tonnes of wheat – about 35% of the expected harvest – exposed to climate stress. The global picture is further complicated by already elevated fertiliser costs following conflicts in the Strait of Hormuz and tensions between Iran and Israel.

Why Colombia, Peru and Brazil Are Exposed – and Why Chile and Mexico Are Not

Colombia: Food and Energy Double Blow

Colombia stands out because El Niño hits it through two channels simultaneously. First, steep food-price increases driven by reduced crop yields and disrupted internal logistics. Second, a direct hit to energy tariffs – a rare combination that amplifies the pain for households and keeps core inflation stickier than in peer economies. The bank’s warning that hydrological normalisation could lag until mid-2027 matters because it extends the period during which electricity costs remain elevated, potentially forcing the central bank to hold rates high for longer than markets currently price.

Peru: Food-Driven Vulnerability, but a Less Intense Pulse

Peru’s modelled inflation impact is smaller, at 0.8 percentage points, and virtually all of it flows through food prices. The country’s heavier reliance on imported food means that supply shocks are often passed through quickly to consumers. However, because the energy channel is absent from the model’s results, the overall macroeconomic sting is less persistent – an important nuance for investors trying to gauge where central banks might have more room to ease policy if inflation data soften elsewhere.

Brazil and Argentina: Crop Damage with Global Echoes

The real economy channels in Brazil and Argentina centre on lost agricultural output, not headline inflation. A 10% drop in Brazilian maize production and a 5% sugar decline, alongside a third of Argentina’s wheat crop at risk, could tighten global soft-commodity balances. The timing is especially delicate because it coincides with harvest periods in the United States and Australia, meaning global supply could be pinched from both hemispheres. The overlay of high fertiliser costs – driven by geopolitical friction in the Middle East – adds another layer of cost pressure that grain and sugar markets are already struggling to absorb.

Why Chile and Mexico Appear Insulated

The Bank of America model found no statistically significant impact on the consumer price index in either Chile or Mexico. One plausible explanation is that both countries have more diversified agricultural import sources and domestic production that is less sensitive to the specific rainfall and temperature anomalies El Niño generates. For Mexico, the energy sector is dominated by domestic hydrocarbons rather than hydroelectricity, which reduces the temperature-to-tariff pass-through. Still, the study’s variable correlation does not rule out indirect effects via global food commodity chains.

What Policymakers, Investors and Consumers Should Watch

For Colombian policymakers, the report is a prompt to stress-test inflation forecasts that assume a rapid return to normal rainfall. BofA’s own tracking suggests that even if El Niño fades in early 2027, water conditions may not stabilise until mid-year, extending the period of elevated energy tariffs.

Central banks in Colombia and Peru will closely watch food inflation indicators in the coming months. A material rise in core inflation, coupled with the food shock, would likely delay any rate-cutting cycle.

Commodity traders and food importers should monitor Brazilian and Argentine planting weather from October to December 2026 – the window BofA identifies for maximum El Niño intensity. The confluence of a potentially smaller maize and wheat harvest with already elevated fertiliser costs could keep grain prices resilient well into 2027.

For Colombian households, the concrete takeaway is an expected increase in both the food basket and the electricity bill if the severe scenario materialises. Peruvian consumers, while facing a smaller headline shock, should prepare for a notable jump in food costs alone. In both countries, locking in fixed electricity contracts or front-loading purchases of non-perishable staples could offer some budgeting certainty.