Global Economic Outlook & Strategy: The Resilient Global Economy—Cascading Supply Shocks

Research evidence excerpt

Global Economic Outlook & Strategy: The Resilient Global Economy—Cascading Supply Shocks

Global Economic Outlook & Strategy

25 June 2026 Citi Research

disrupts the cold-water upwelling off the Peruvian coast that sustains the

anchovy population, collapsing the fishing industry; for Panama, the channel

is unique, as El Niño reduces water levels in Gatún Lake, restricting Canal

transit and raising logistics costs across the region.

We find a dramatic amplification of the inflationary response when El Niño

arrives during an already-elevated inflation environment. Headline inflation

responses in the El Niño state are 2 to 17 times larger than the unconditional

average, with Colombia's result the most striking: in the El Niño state, a 1-standard

deviation shock generates a cumulative headline inflation response of +3.26 pp at

month 6 (Figure 16), more than 17 times the unconditional estimate of +0.19 pp,

driven primarily by the energy channel through hydroelectric generation, consistent

with the 2015–16 experience when Banrep initiated a new hiking cycle as food

inflation surged.

Regarding Mexico, our estimate for the effect of El Niño on headline inflation is

an accumulated effect (in a 12-month horizon) between 29-bps and 59-bps

depending on the severity of the weather phenomenon (Figure 17). The effect

would be reflected mainly in non-core fruits & vegetable inflation, which could

have an accumulated effect between 4.8 pp and 9.6 pp. One of the most recent

severe El Niño events in 2014–2016 resulted in fruits & vegetables inflation

reaching a high of 27% YoY, close to 20 p.p. above the 10-year average. In 2023–

2025 there was also an El Niño event, but the effect could have been amplified due

to the fertilizer crisis arising from the Ukraine-Russia geopolitical conflict.