A San Francisco Fed working paper finds that a historical model’s second-year price increase after a very strong El Niño varies with the next year’s climate phase.
Brigitte Roth Tran, a senior economist at the Federal Reserve Bank of San Francisco, authored the paper. It analyzes past episodes rather than forecasting the 2026-27 event. The paper reflects Tran’s views, not those of the San Francisco Fed or the Federal Reserve System. In its baseline model, a mean very strong episode leaves the headline personal consumption expenditures (PCE) price index about 1% higher by the end of November in the following year. That is a change in the index level, not a one-percentage-point increase in annual inflation.
For May through July, the model puts headline PCE prices about 0.3% above April levels, with energy, food and core services contributing. Across the model’s 18-month window starting in May of the El Niño year, food prices end about 2.5% higher. Food adds an estimated 15 to 20 basis points to the longer-run increase, while core services account for most of it.
The later price result is sensitive to what comes next. When Tran’s analysis controls for the following year’s El Niño-Southern Oscillation (ENSO) conditions, including whether La Niña follows, the modeled second-year increase disappears. The study also finds employment effects that are modest and mixed at first, followed by gains across industries and states the next year. Those estimated gains do not hinge on a later La Niña.
NOAA’s Oct. 8 outlook put the probability of strong or very strong El Niño conditions continuing through January through March 2027 above 83%. NOAA cautioned that its outlook does not guarantee any particular El Niño-related effects. The Bureau of Economic Analysis reported September PCE prices were 3.6% higher than a year earlier, with core PCE prices up 3.1%. On Oct. 28, the Federal Open Market Committee held the federal funds target range at 3.75% to 4%; two members supported an immediate quarter-point increase. The Fed said inflation was above its 2% objective.
NOAA’s next ENSO Diagnostic Discussion is scheduled for Nov. 12. The next Bureau of Economic Analysis personal income and outlays report, covering October, is scheduled for Nov. 25 at 8:30 a.m. EST.
