El Niño hasn’t hurt food prices; Ukraine war remains in a stalemate

Genevieve Signoret & Delia Paredes

(Hay una versión en español de este artículo aquí.)

Today, we update you on two risks we identified in our September 12 edition of Quarterly Outlook, El Niño and its bearing on inflation and the Russia–Ukraine war.

El Niño

In the case of El Niño, the risk we saw was that the weather phenomenon would spark a surge in world food prices. Because of the heavy weight that food prices have in consumer budgets in emerging and developing economies such as Mexico’s, this could force Banxico to resume rate hikes. In our central scenario, called Soft Landing, we assumed that this would not happen.

So far, our Soft Landing assumption has been borne out. World food prices not only have not spiked but in fact continue to decline. Evidence of their decline can be seen in the November 3 release by Food and Agriculture Organization of the United Nations (FAO) of its World Food Situation, titled “FAO Food Price Index continues to drop, but at a slower pace”. We quote:

The FAO Food Price Index* (FFPI) averaged 120.6 points in October 2023, down 0.7 points (0.5 percent) from September, continuing the downward trend and standing 14.8 points (10.9 percent) below its corresponding value a year ago. The slight drop in October reflects declines in the price indices for sugar, cereals, vegetable oils and meat, while the index for dairy products rebounded.

This same FAO report includes the following chart showing the path of food prices over each year since 2020:

Confirming our central scenario and despite the ongoing El Niño weather phenomenon, world food prices have not spiked. In fact, they continue to decline (red curve).

FAO Food Price Index, January 2020–October 2023 (2014–2016=100)

Ukraine War

Turning now to Ukraine, the risk we laid out last September was the upside risk that peace talks would begin during the 2023–2025 forecast period. We assumed to the contrary that the impasse would continue. This hypothesis has been borne out not only in our perception but also in that of Ukraine’s commander-in-chief, General Valery Zaluzhny. The general is quoted in a November 1 article of The Economist characterizing the Ukraine war status as “a stalemate”.

We hold to our central-scenario assumptions that world food prices will not spike on account of the 2023–2024 El Niño event, and that, over 2023–2025, the stalemate in the Russia–Ukraine war will persist.