Mexico: El Niño - Wild mood swings in the making

Research evidence excerpt

Mexico: El Niño - Wild mood swings in the making

rtfall could quickly increase fall shocks, drought intensity, water reservoirs and RONI. We

agricultural exposure and subsequently pressure fresh-food also control for seasonality and broader macro conditions, so

prices. that the estimates capture the climate channel rather than reg-

ular food-price patterns.

Furthermore, weather-exposed crops can matter dispropor-

tionately for fresh-food supply even when their direct weight The estimates point to a clear seasonal asymmetry. El Niño-

in total GDP is limited. For instance, rain-fed planted areas related winter rainfall produces a small and slightly disinfla-

accounted for 72.5% of Mexico’s agriculture in 2024, with tionary average response when it replenishes soil moisture

exposure concentrated in the Southwest (Tabasco, Chiapas, and usable water supplies. The summer response is larger and

Oaxaca and Veracruz). On the other hand, rain-fed output val- more persistent because weaker rainfall directly constrains

ue accounts for a lower 39.1%, suggesting that irrigated crops the main agricultural season.

tend to generate greater value per hectare. This gap helps

explain why the price channel can be more visible than the A strong summer shock produces an annual headline inflation

aggregate growth channel. response that peaks at around 0.17% after three to four quar-

ters, while a very strong summer event peaks near 0.22%.

Fresh food carries the price shock The corresponding winter responses remain much smaller, at

approximately -0.03% and -0.05% (Figure 8). The contrast

Fresh food is the key inflation transmission channel. Fruit and

across the four paths reinforces the main message. Strong and

vegetable prices are volatile and react quickly to changes in