Investors Fear Food Inflation as Next Threat After 2026 Energy Surge Lifts Bond Yields

Since the start of 2026, sharp rises in energy prices have been a major source of pressure on global bond markets. Surging oil and natural gas prices, together with market concerns about debt burdens in Europe and the United States, have continued to weigh on government bonds, pushing yields to their highest in nearly two decades. The Federal Reserve has raised interest rates and said it will contain inflation. At the same time, because of a bumper grain harvest in 2025, food prices had been helping to keep inflation in check.

As the war in Iran drags on and a super El Niño emerges, global food security risks are mounting, and market attention is shifting from the energy price shock to a food price shock. The UN Food and Agriculture Organization's global food price index has risen to its highest level since late 2022, with tightening grain supplies, disruptions to key maritime shipping routes and the resulting supply squeeze pushing grain prices higher. Unlike energy, food has smaller second-round effects on production costs, but demand for food is relatively inelastic.

The Bank of England held interest rates unchanged on Thursday and said food inflation poses upside risks into 2027.