MacroInsight  /   Click here for full PDF version 
 Author(s):  Kefas Sidauruk 

• Probability of a strongEl-Nino is rising with the current trajectory potentially outpacing the 1997/2015.
• We expect higher food inflation if strong El-Nino materializes. Impact to rice price might be limited by record-high rice reserve and HET.
• BMKG is taking a more conservative view (weak-to-moderate El Nino) but they expect the dry season to be longer and drier than 30Y average.

Strong El Nino formation is highly likely in 2H26
The probability of a strong El Nio is rising based on several major meteorological agencies (US NOAA , Australian BOM, European ECMWF), with the current trajectory similar to 1997 and 2015 super El Nio events. The ONI index -- the standard gauge of El Niointensity -- could exceed +2.5 Celsius by Sep/Oct26, well above the +2 Celsius threshold that defines a Very Strong El Nio. While the outcome remains probabilistic, we adopt a strong El Nio as the base case for the purpose of this note.
El Nino will materially impact the volatile food
We assessed the relationship between volatile food inflation and the ENSO index over 2013-2026, a period that captures two strong El Nio episodes (2015/16 and 2023/24) and the 2020/22 La Nia. Under the strong-El-Nio base case (peak ONI roughly +1.8 Celsius), the analysis implies an additional +2.7% point of volatile food inflation for 1 year following the peak. A super El Nio scenario (peak +2.5 Celsius) would translate to roughly +3.8% point. As a reference point, the 2015/16 episode saw volatile food inflation accelerate from around 7% in early 2015 to 10% in early 2016. The impact is uneven across commodities: horticulture and sugar absorb the bulk of the inflation push, while rice shows a relatively modest response. A lagging response may also be seen in cooking oil prices.
Rice price could be less responsive given existing mechanisms
For rice specifically, our analysis points to a more muted price response due to record-high BULOG's stockthat keep supply adequate, HET enforcement on retail prices, and an active import channel. BULOG's stock currently stands at c.5.4mn ton, deemed sufficient to cover domestic consumption through mid-2027. We still expect rice prices to rise, but these mechanisms should lessen the magnitude -- our estimate is that a strong El Nio would add c.2.7% point on top of normal-period rice inflation of c.3.1% yoy. Production-side effects are harder to quantify directly given the BPS methodology change in 2018. Spatially, the impact should fall disproportionately on Java and Nusa Tenggara, the regions BMKG has flagged as entering the 2026 dry season earliest.
El-Nino is a consensus, but a strong one may still pose upside risk to CPI
Whether the strong-El-Nio base case materialises will depend on forecasts through August, when seasonal predictability improves substantially. We note that BMKG takes a more conservative view, projecting a 50-80% probability of a weak-to-moderate El Nio with peak anomalies below 1.5C, effectively ruling out a super event in their base case. Even under this more conservative outlook, the dry season is expected to run longer and drier than the 30-year average -- sufficient on its own to generate a sizable food price pressure.


Sumber : IPS