Global food price outlook 2027: the calm after the storm?

Central banks exclude food from core inflation measures and generally "look through" temporary food shocks for a principled reason: monetary policy affects demand, not agricultural supply. A drought in India cannot be addressed by raising interest rates — and raising rates in response to a food shock would reduce demand and employment without solving the supply problem. The exception: if a food shock is large enough and persistent enough to shift inflation expectations — if the public expects food prices to stay high permanently and demand wage increases accordingly — then the shock becomes a wage and services inflation problem that does warrant monetary response.

La Niña (the cool phase of the El Niño-Southern Oscillation) typically increases drought in South Asia (especially India, Pakistan), reduces rainfall in eastern Australia and southern Africa, and slightly increases rainfall in the US Midwest (net positive for corn and wheat). The net effect on global food prices depends on which effects dominate. Historically, La Niña years have a small but positive correlation with higher global food prices due to the India-Pakistan-Australia drought effect on wheat and rice. The 2022 La Niña contributed to Australia's initial wheat shortfall before the record 2023 harvest.