El Niño Expected to Bring Drier Conditions to Parts of Asia in 2026

El Nino is forecast to bring drier conditions and hotter weather to countries from India to New Zealand later in 2026, driving up food costs on top of an oil shock already pressuring economies across Asia. Inflation accelerated to multiyear highs across much of Asia according to latest figures, led by higher transport, logistics and utility costs.

The biggest spikes were in the Philippines, where inflation soared above 7%, and Pakistan, where it reached 11%.

Food makes up about 40% to 50% of consumer price baskets in emerging markets in Asia. "Food inflation in Asia is set to rise in 2026," said Adam Ahmad Samdin at Oxford Economics. " A recent surge in fertilizer costs driven by the Middle East conflict will take time to feed into food prices.

"All else equal, if weather conditions deteriorate as projected, the second half of 2026 may see bigger inflationary pressures," Bank of America economists led by Rahul Bajoria wrote in a note focused on Southeast Asia. An index of 10-year yields from eight emerging-Asian economies has risen by over 80 basis points since the start of the Iran war.

The International Monetary Fund expects inflation to be as much as 4 percentage points higher by next year.

6%. The Japan Times reported these forecasts amid the dual pressures of climate patterns and ongoing geopolitical tensions. The Philippines is among the most vulnerable as it is heavily reliant on food and fuel imports.

Inflation last month was far worse than economists projected and well above the central bank’s 3% target. Weak consumer spending dragged down Philippine economic growth to its slowest pace in more than a decade, outside of the COVID-19 pandemic, with the Philippine economic growth data released on Thursday. Bangko Sentral ng Pilipinas said this week it is ready to act on inflation.

In Indonesia, economic growth accelerated to a three-year high in the first quarter, though activity may slow ahead with potential downside risks from a stronger El Nino dry spell. Weaker hydropower generation in India, Vietnam and parts of China may result from El Nino. The Reserve Bank of India has warned that a weaker monsoon could hit crop yields and push up food prices.

6%. 1% for 2027. Citigroup expects the RBI to remain on hold.

Pakistan’s central bank unexpectedly hiked rates in April as Pakistan inflation has jumped to double digits and is expected to stay elevated. 8% in March. A recent surge in food prices is making inflation more sticky in Japan, according to Bloomberg Economics.

5% since July last year. The Japan Times reported that by contrast the impact on Asia’s richer countries is likely to be relatively modest as more diversified, services-heavy CPI baskets dilute food and energy shocks.