UBS warns El Nino and war could drive sustained food inflation across Asia

UBS Warns El Niño and Fertilizer Shocks Could Spike Asia Food Inflation

A new report from UBS Group warns that Asian economies face a period of sustained food inflation driven by twin threats: an increasingly likely El Niño climate event and fertilizer supply disruptions from the ongoing conflict in the Middle East. The Swiss bank’s analysts project persistent upward pressure on food prices across the region from the second half of 2026 through 2027, complicating the outlook for consumers and central banks alike.x

Rice Prices Surge as Supply Risks Mount

The warning comes as Asian food markets are already showing signs of stress. Thai white rice, an Asian benchmark, rallied 20% in May — the largest single-month gain in data going back to 2008, according to Bloomberg and The Straits Times. Rice futures on the Chicago Board of Trade also jumped 15% during the month.straitstimes

The U.S. Climate Prediction Center said in May that El Niño has an 82% chance of developing by July and a 96% probability of persisting through December 2026 to February 2027. Fortune reported a 67% chance the event could evolve into a “super” El Niño heading into 2027. The World Meteorological Organization has confirmed the shift, stating in April that “climate models are now strongly aligned, and there is high confidence in the onset of El Niño.”reuters

Fertilizer Crisis Compounds Weather Risks

The Middle East conflict, which erupted in late February 2026 when the U.S. and Israel struck Iran, has severely disrupted fertilizer supply chains through the Strait of Hormuz — a route handling over 36% of global urea imports, according to J.P. Morgan. Urea prices have surged roughly 50% since the conflict began, CNBC reported, jumping from around $400–$490 per metric ton to approximately $700.cnbc

UBS analysts noted that corn futures for 2026 and 2027 deliveries have risen approximately 4% and 5% respectively since the Iran conflict erupted. The FAO warned in April that the fighting had “sharply increased risks to global energy, fertilizer, and agrifood systems,” with tanker traffic through the Strait of Hormuz collapsing by more than 90%.un

Central Banks Face Difficult Choices

The inflationary pressures are already reshaping monetary policy across the region. MUFG Research expects the Philippine central bank to hike rates by 75 basis points in 2026, with a possible jumbo 50-basis-point increase in June, while the Reserve Bank of India could deliver at least 50 basis points of hikes this fiscal year.mufgresearch

Reuters noted in March that food inflation poses a particular challenge for central banks because it affects low-income households disproportionately and can entrench broader inflation expectations. With El Niño threatening harvests just as input costs climb, the dual shock UBS identifies may leave policymakers across Asia with few palatable options in the months ahead.reuters