Latin American economies face renewed inflationary pressure and possible delays to interest rate cuts if a strong El Niño weather pattern disrupts food production, electricity generation and infrastructure this year, Swiss bank UBS said in a research note on July 13, singling out Colombia as the region's most exposed economy.

The bank's emerging markets team said the climate cycle, which shifts warm Pacific waters towards South America and alters regional rainfall patterns, could bring flooding to some areas and drought to others, with knock-on effects for agriculture, fishing, hydropower and transport links.

The US National Oceanic and Atmospheric Administration (NOAA) has put the probability of the current episode reaching a very strong intensity at 63%, with effects expected to persist until late 2026 and into early 2027.

UBS assessed countries in the region on two measures: their physical exposure to the weather pattern and their macroeconomic capacity to absorb any resulting shock.

Colombia ranked as the most vulnerable economy under that framework, UBS said, citing a combination of high inflation, a weak fiscal position and significant exposure to swings in food and electricity prices. Brazil and Peru also featured among the more at-risk economies, though for different reasons: Brazil due to broader macroeconomic fragility and Peru because of heavier direct exposure to climate effects on crops, fisheries and infrastructure, according to the bank.

Mexico's exposure was described as mixed. UBS said the effect on inflation there would depend on whether key food-producing regions were hit during a period of already-high prices, pointing to a previous episode involving tomato prices as a precedent.

The bank flagged additional risks for Venezuela, where drought could strain hydroelectric generation, the country's main power source, and for Panama, where lower water levels could disrupt canal traffic, although it said dynamic toll pricing at the waterway would limit the fiscal impact. Argentina, by contrast, could see a boost to grain and oilseed output from higher rainfall, while Chile's exposure was assessed as limited.

UBS analysts Alejo Czerwonko, Alberto Rojas and Laura Assis Iragorri said in the note that El Niño "changes where the water goes," affecting crops, hydroelectric power, fisheries and, in some cases, roads and buildings, with knock-on effects for prices and central bank policy.

The bank said that if the weather pattern were to trigger an inflation shock, either directly through food prices or indirectly via supply disruption, markets would likely price in higher policy rates, as regional central banks have tended to favour a restrictive stance to protect credibility and limit currency depreciation.

The Latin American assessment forms part of a broader set of warnings from economists about the potential global impact of the 2026-27 El Niño cycle, which forecasters have described informally as a "super" event given the scale of warming projected in the Pacific. Goldman Sachs has estimated the cycle could drive a 15.8% increase in global food commodity prices, with the full effect not expected to be realised until the second half of 2028 due to lags in planting and harvest cycles. UniCredit analysts have separately estimated that an extreme scenario could cut global agricultural output by 14.3%, equivalent to around $342bn in lost production.

UBS said forecasting the precise path of El Niño remained difficult despite advances in modelling technology, and recommended assessing each economy's vulnerability across a range of scenarios rather than assuming a single outcome.

"Even the strongest El Niño events do not lead to the typical impact everywhere, but stronger events can more significantly tilt the odds in favour of expected outcomes," the US Climate Prediction Center said.