A brewing El Niño weather pattern could add as much as a full percentage point to U.S. prices in 2027, according to new research out of the Federal Reserve Bank of San Francisco. The paper also found the same climate event will likely boost employment, a dual-edged forecast that lands as the Fed juggles inflation that has run above target for years.
The findings come from a working paper described as posing a “meaningful risk” of higher U.S. inflation in 2027 even as it also will likely add to employment, according to Reuters, whose reporting on the paper was also carried by WTAQ. Researchers estimate the current episode may have already increased headline price levels by about 0.3 percentage point between April and July of this year, per Reuters. That initial bump is projected to fade by the end of 2026, the outlet reports, before potentially pushing prices up in 2027 by as much as 1 percentage point.
The underlying research, titled In Hot Water? The Macroeconomic Impacts of El Niño, states plainly that El Niños pose material upside risk for PCE prices and employment. The San Francisco Fed's own publication identifies the paper as Working Paper 2026-21.
Why Food And Services Prices Could Climb
According to the San Francisco Fed research, the longer-run price effects are driven by core services and food prices rather than any single commodity spike. The same paper notes that those longer-run effects depend on whether La Niñas follow El Niños, leaving the ultimate size of the impact uncertain. On the labor side, the research found that employment increases are widespread in terms of both sectors and states in the year following the El Niño, after some modest initial offsetting effects.
The paper's authors also flagged a wrinkle for how shocks might ripple through the economy today. Global integration of markets means the US economy may be more sensitive than before to foreign shocks, the authors said, as reported by Reuters. They added that disruptions to the fertilizer market, supply chain disruptions in energy markets, and record-setting weather events could also interact with this El Niño in unexpected ways.
A Very Strong El Niño On The Horizon
The timing lines up with alarming signals from weather forecasters. The World Meteorological Organization says El Niño is expected to strengthen further during the coming months to a very strong intensity, with impacts continuing into 2027. The WMO puts the odds of the pattern persisting through February 2027 at an exceptionally high likelihood of nearly 100%.
Sea-surface temperatures in the central-eastern equatorial Pacific were running approximately +2.2°C to +2.6°C above average between late July and mid-August of this year, the WMO reports. The organization warns that a very strong event increases the likelihood of major changes in rainfall, temperatures and atmospheric circulation across many regions of the world.
What Past El Niños Have Done To Prices
This is not the first time economists have tried to quantify El Niño's bite on inflation. A 2015 working paper from the International Monetary Fund, authored by Paul Cashin, Kamiar Mohaddes and Mehdi Raissi, found that most countries in its sample experienced short-run inflationary pressures following an El Niño shock, largely tied to rising energy and non-fuel commodity prices. The IMF study examined inflation across 21 countries using data running from 1979 through 2013.
That same IMF analysis found real non-fuel commodity prices climbed 5.31% four quarters after an El Niño shock, amid broader energy-price pressures. The IMF paper also discusses the 1997/98 El Niño.
The new San Francisco Fed research arrives at a moment when U.S. inflation has already exceeded the Federal Reserve's 2% target for more than five and a half years, a run shaped by pandemic-era supply chain disruptions, a sharp increase in tariffs in 2025, and a rise in global oil prices since the war in Iran began early this year, according to the dossier of facts tied to the original report. The Federal Reserve has also been grappling with inflationary demand tied to AI-related goods and services, even as analysts describe current financial conditions as not particularly restrictive.
The Fed held interest rates steady in the week before Reuters' November 2, 2026 report, and markets widely expect the central bank to raise its policy rate again in December and once more in 2027 to tamp down inflation. Amid that backdrop, the paper's author, San Francisco Fed senior economist Brigitte Roth Tran, describes the implications of El Niño for the U.S. economy as genuinely uncertain. The research argues that improved weather forecast quality at least allows businesses, households and policymakers to prepare better than they could in the past.
