Fed warns El Niño could lift US inflation

Federal Reserve Bank of San Francisco researchers warn that the unusually strong El Niño could add to U.S. inflation risks in 2027, complicating the outlook for policymakers. They estimate it lifted the PCE price index by about 0.3 percentage points between April and July 2026, an effect they expect to fade by year-end. If El Niño gives way to La Niña next year, renewed pressure could raise PCE inflation by as much as 1 percentage point; the researchers stress this is a risk scenario, not a forecast. Historical cycles also suggest employment tends to strengthen and unemployment decline in El Niño’s second year, even as extreme weather can disrupt sectors such as agriculture and construction.