Latin American Economic Perspectives: El Niño Returns: Five Key Topics For Latam

Research evidence excerpt

Latin American Economic Perspectives: El Niño Returns: Five Key Topics For Latam

r into a

broader set of activities (Figure 5Andeaneconomies:ElNiñosectorimpacts). In Peru and Chile, watch for confluence of global and

coastal El Niño for potentially stronger impacts. The inflation impact comes mainly

through perishable foods, with Colombia and Peru particularly vulnerable, albeit for

different reasons (Colombia for droughts, Peru for excess rainfall). Energy prices could

also add pressure in Colombia. Under a strong El Niño, inflation could end up some 160

bps/130 bps higher than in our base case in Colombia and Peru, respectively, with peak

impact by late 1H'27. In Chile, worsening rainy conditions could temporarily add

pressure to inflation in 2H'26. Andean CBs will watch closely for potential

contamination of inflation expectations. Banrep set to keep rates higher for longer.

Between inflation risks and positive growth backdrop, BCRP likely to kick off hikes in Q4.

Brazil: a short-term volatility shock rather than a trend shift

The main impact should be on inflation, especially fresh food, as excess rainfall increases

IPCA volatility. However, the effect on the average price is uncertain. Secondary risks

emerge from protein and electricity prices, which will ultimately depend on the rainfall

distribution across the country.

Mexico: Main impact would come through perishable food prices

El Niño effect will be characterized by increased rains in the west during the winter

months and potentially by rainy cold fronts in the north and center of the country.

Meanwhile, in the summer, El Niño is associated with lower rainfalls and potential

droughts in Mexico’s central highlands, which may have a higher incidence on crop

production.