Goldman Sachs has warned that Southeast Asia could see food inflation rise by an additional 2.1 percentage points over the next year, driven by higher oil and fertilizer costs and a potential El Nino event in late 2026. The alert comes as markets also watch for the Federal Reserve's next move on interest rates.
The Bank's Projection
In a research note, Goldman Sachs outlined how the combination of input cost increases and a possible climate shock could push up food prices across the region. The 2.1-point estimate represents extra inflation on top of current trends. The bank did not specify a timeline beyond the next twelve months, but the warning arrives as food affordability is already a concern in many Southeast Asian economies.
Why Oil and Fertilizer Matter
Rising oil prices raise the cost of fuel for farming, transportation, and food processing. Fertilizer prices have stayed elevated after spiking in recent years. Together, they make it more expensive to produce and move food. Those costs eventually reach consumers, squeezing household budgets in countries where food accounts for a large share of spending.
The El Nino Wildcard
A late-2026 El Nino could disrupt rainfall patterns across the region, bringing drought to some areas and floods to others. Crop yields for staples like rice and palm oil could suffer. Goldman Sachs factored the risk of such an event into its inflation forecast, though El Nino is not guaranteed. The region includes major agricultural exporters like Thailand and Vietnam, as well as importers like the Philippines and Indonesia — each would be affected differently.
Fed Rate Outlook
Separately, prediction market Polymarket now gives a 74% probability that the Federal Reserve will hold interest rates steady at its July meeting. That forecast reflects expectations that the Fed will wait for more data before moving. A steady Fed rate could keep the dollar strong, which may affect import costs for food and energy in Southeast Asia. The combination of higher food inflation at home and a strong dollar abroad could complicate policymaking for central banks in the region.
The Goldman Sachs warning underscores how fragile food affordability remains in Southeast Asia. Whether the predicted El Nino arrives — and how much further oil and fertilizer costs climb — will determine if the 2.1-point increase actually materializes. For now, the bank's estimate gives governments and investors a number to watch.
