Global warming and heat extremes to enhance inflationary pressures

Abstract

Climate impacts on economic productivity indicate that climate change may threaten price stability. Here we apply fixed-effects regressions to over 27,000 observations of monthly consumer price indices worldwide to quantify the impacts of climate conditions on inflation. Higher temperatures increase food and headline inflation persistently over 12 months in both higher- and lower-income countries. Effects vary across seasons and regions depending on climatic norms, with further impacts from daily temperature variability and extreme precipitation. Evaluating these results under temperature increases projected for 2035 implies upwards pressures on food and headline inflation of 0.92-3.23 and 0.32-1.18 percentage-points per-year respectively on average globally (uncertainty range across emission scenarios, climate models and empirical specifications). Pressures are largest at low latitudes and show strong seasonality at high latitudes, peaking in summer. Finally, the 2022 extreme summer heat increased food inflation in Europe by 0.43-0.93 percentage-points which warming projected for 2035 would amplify by 30-50%.

From greedy grocers to carbon taxes and everything in between: what do we think we know about food prices in Canada and how strong is the evidence?

“…Though we identified 11 claims linking climate change to changes in the price of food (8 through environmental impacts and 3 through policy), most of the climate change discussion in the CFPRs is unaccompanied by specific claims about food price behaviour (e.g., the directionality of price changes). There is widespread sentiment in food systems research that unmitigated climate change will impact food prices in myriad ways, even if the immediate impacts of climate change are experienced elsewhere in the world (Bradbear and Friel, 2013;Arora, 2019;Kotz et al, 2024).…”