A new San Francisco Federal Reserve analysis says the current El Niño could create a meaningful risk of higher U.S. inflation in 2027. The authors stress that the result is uncertain and depends in part on what climate pattern follows.
The research estimates how El Niño episodes have affected prices and employment in the past. Using that historical relationship, the model suggests the current episode may have temporarily added about 0.3 percentage point to consumer prices through July, an effect expected to unwind by the end of 2026.
The larger concern is a possible price increase next year. The model estimates a one-percentage-point rise in the personal consumption expenditures price index over 2027 if the historical pattern is repeated.
That estimate is conditional, not a forecast that prices will necessarily rise by that amount. The analysis expects a La Niña pattern to follow El Niño, a common sequence, but the authors say their model does not predict whether that will happen.
El Niño is a periodic warming of surface waters in the tropical Pacific that can alter weather around the world. Those shifts can affect crop conditions, food costs and other parts of the economy, while the study also finds possible effects on employment.
The researchers estimate that employment tends to rise in the year after El Niño, even when the inflation effect is considered separately. They caution that only 22 El Niño events were available for the historical analysis, including four classified as very strong.
The current episode is projected to be stronger than any of those events, which makes extrapolating from the historical record especially uncertain. The findings describe a risk to watch, not a settled outcome for households or policymakers.
The research is useful because it connects climate variability with familiar economic indicators such as food prices, services and jobs. Whether the risk materializes will depend on how the climate evolves and on factors beyond El Niño that also shape prices.