Strong El Niño: The climate shock threatening food inflation and GDP

A 90% probability forecast for a severe El Niño is more than a weather warning; it is a critical red flag for the Brazilian economy, which is still struggling to anchor the 12-month accumulated IPCA, currently at 4.44%. The phenomenon, which drastically alters precipitation patterns, directly impacts agricultural productivity—a vital component of Brazil's GDP. As climate instability reduces the supply of basic Commodities, it puts upward pressure on the cost of living and challenges price stability. With the commercial Dollar at R$ 5.1859 and a 1.58% rise over the last 7 days, markets are beginning to price in these risks. A supply shock complicates the Central Bank's task, as high interest rates, such as the 14.00% Selic, combat demand but cannot prevent crop failures. Investors are advised to prioritize assets with a margin of safety, such as exporters with dollarized revenue, while avoiding highly leveraged companies as volatility in agricultural commodities on the B3 is expected to rise.