By Marco Lopez
Climate change is an inflation driver. This is according to a study published earlier this year. Rising temperatures and extreme weather events have a measurable and persistent impact on food and overall inflation globally, the paper found.
The most significant effects are observed in food prices, particularly in low-income countries. These effects threaten food security and exacerbate poverty in already vulnerable nations.
The study found that the impacts are long-lasting—a 1°C monthly temperature increase can raise food inflation by 0.17 percentage points over a year.
The effects among nations are, however, nonlinear and vary by region, with countries in the Global South being the most impacted. In temperate countries, inflation spikes only during summer, the study suggests.
The hardest hit regions—Africa and South America—will experience the largest inflationary pressures, up to 3.23 percentage points per year on food inflation by 2035. Poorer economies are more vulnerable due to their dependence on agriculture, weaker infrastructure, and limited fiscal space to combat climate-induced inflation. The need to implement climate-resilient agriculture and food systems cannot be overstated. Policy changes should also include inflation targeting frameworks that consider climate risk.
Over 27,000 monthly inflation observations across 121 countries from 1996–2021 were analyzed for this study. These were merged with high-resolution weather data (ERA5) and assessed using fixed-effects regression models to isolate the impact of temperature, temperature variability, and precipitation on inflation.
Climate-related inflation can be broken down into two interlinked problems: lack of access to food—made more difficult by climate change—and the impact of inflation on prices themselves.
At COP28, 134 countries signed a declaration to incorporate food systems into their climate action, to help ensure everyone has enough to eat in light of climate change. Government intervention will be essential to ensure financial protection and nutritional aid for the vulnerable, helping them avoid becoming trapped in the poverty cycle by inflation and diminished access to food.
Citation
Kotz, M., Kuik, F., Lis, E., & Nickel, C. (2024). Global warming and heat extremes to enhance inflationary pressures. Communications Earth & Environment, 5, Article 116. https://doi.org/10.1038/s43247-023-01173-x
