Australians face the prospect of even steeper supermarket prices as meteorologists warn the brewing El Niño will be the most powerful on record, piling fresh pressure on households already grappling with a stubborn cost-of-living crisis and clouding the Reserve Bank’s path back to its inflation target.
The Bureau of Meteorology has forecast the climate phenomenon will peak in late spring or summer, reaching intensities above the warmest recorded since reliable data collection began in 1950. Analysts warn the resulting hot, dry conditions across eastern Australia’s key growing regions could reverberate through supply chains well into next year.
Weather Threatens Key Growing Regions
Michael Harvey, a consumer food analyst at Rabobank research, described the predicted conditions as “clearly one of the key issues that will have an impact on food pricing over the next 12 months.”
The Food and Agricultural Organisation’s latest update noted that escalating weather-related risks are already translating into higher and rising global commodity prices, suggesting Australian consumers will not be insulated from international market turbulence.
“It’s a very volatile time, and there are lots of risks around cost re-escalation in the food system. There is absolutely risk of food inflation coming through at the consumer end,” Harvey said.
Not every category is moving in tandem. Dairy and meat prices have begun to retreat following a steep recent climb, as market fundamentals shift independently of the looming weather event. But the winter wheat crop remains exposed, and Harvey identified it as the critical variable heading into the final quarter of the year.
“That will be the big thing to watch, as well as the spillover effects of that into things like feed grains,” he said.
Global Shocks Compound the Pressure
Even without El Niño’s bite, international pressures are already pushing commodity benchmarks upward. Dennis Voznesenski, Commonwealth Bank’s agricultural economist, noted that global wheat prices have surged roughly a third since the start of July, compared with about 9% in Australia.
The geopolitical landscape is adding further strain. Attacks on critical Black Sea ports have left record grain harvests from Russia and Ukraine stranded, choking a significant slice of global supply.
“A third of global grain exports are stuck right now,” Voznesenski said.
Energy markets are delivering another blow. Brent crude pushed past US$97 a barrel on Monday afternoon, climbing 35% since early July, while diesel costs are climbing once more, directly squeezing farmers who depend on fuel for planting and transport. Fertiliser suppliers have warned that ongoing supply disruptions will keep prices structurally elevated.
Cost-of-Living Strain Deepens
The past five years have delivered punishing increases across core supermarket ranges, entrenching a cost-of-living crisis that has reshaped household budgets nationwide. Between mid-2021 and June this year, the cost of staples including breads, cereals, dairy, jams and eggs leapt between 28% and 30%. In the preceding five-year period, cumulative increases for the same items ran between 3% and 6%, according to quarterly Australian Bureau of Statistics data.
That backdrop has RBA officials on alert. Officials are concerned that an especially severe El Niño could push food prices higher at precisely the moment the central bank is weighing whether further interest rate hikes are necessary.
A Secondary Influence, but Unhelpful
Jonathan Kearns, chief economist at Challenger, cautioned against overstating the direct relationship between El Niño events and supermarket prices, noting that labour, freight and packaging costs often play a larger role in determining what Australians pay at the till.
“It won’t be a first-order influence on overall inflation, but if you get a little bit extra from food prices, then it’s unhelpful,” Kearns said.
Why it Matters
The convergence of extreme weather, geopolitical disruption and rising input costs threatens to undermine the Reserve Bank’s hard-won progress on inflation at a moment when household budgets have little capacity to absorb further shocks. With commodity markets already tightening and El Niño yet to reach its peak, the remainder of 2026 looks set to test both policymakers and consumers in equal measure, raising the stakes for an economy still searching for a soft landing.
