1008. Climate Change Impacts on Inflation

Last week, we featured two research articles that examined the economic damage caused by climate change. Climate change, through its effects on economic productivity, can cause inflation and impact consumers’ livelihoods. Today’s article presents a recently published paper that investigates the impacts of climate change on inflationary pressures based on 27,000 observations of monthly consumer price indices around the world.  
https://doi.org/10.1038/s43247-023-01173-x

Higher temperatures persistently increase food and headline inflation over 12 months in both high- and low-income countries. The effects vary across seasons and regions depending on climatic norms, with further impacts from daily temperature variability and extreme precipitation.

Evaluating these results under projected temperature increases through 2035 implies upward pressures on food and headline inflation of 0.92–3.23 and 0.32–1.18 percentage points per year, respectively, on the global average (uncertainty range across emission scenarios, climate models, and empirical specifications).

Pressures are highest at low latitudes and show strong seasonality at high latitudes, peaking in summer. Finally, the extreme summer heat in 2022 increased food inflation in Europe by 0.43–0.93 percentage points, which would be amplified by 30–50% with projected warming in 2035.

Reference
Kotz, M., Kuik, F., Lis, E. et al. Global warming and heat extremes to enhance inflationary pressures. Commun Earth Environ 5, 116 (2024). https://doi.org/10.1038/s43247-023-01173-x

Contributor: IIYAMA Miyuki (Information Program)