Brace for ‘climateflation’: Study predicts rise in food price inflation amid worsening climate change

Imagine a future where your grocery bill climbs higher each year, not because of lavish spending or macroeconomic fluctuations, but because of the changing climate. Sounds far-fetched?

A recent study conducted by German scientists suggests otherwise, indicating that as climate change escalates, so will food prices and overall inflation rates.

Notably, the study reveals that inflationary pressures are more pronounced in hotter areas and seasons. Consequently, regions in the Global South, including India, may face more severe economic repercussions compared to Europe and North America.

A one-way surge in climate-induced inflation

Published in the reputed journal Nature, the study analysed monthly price fluctuations of food and various commodities, alongside temperature trends and other climate factors across 121 nations since 1996.

The researchers projected that weather and climate shocks could lead to a 1.5 to 1.8 percentage point annual increase in food costs within the next decade, with even steeper hikes expected in regions like the Middle East, where temperatures are already soaring. These percentage points signify the anticipated rise in prices.

By 2035, this could translate to an uptick in overall inflation rates by 0.8 to 0.9 percentage points, solely attributable to climate change and extreme weather events. While these numbers don’t look that significant on their own, when combined with other factors affecting inflation, climate change can compound the overall impact drastically.

The cascading impact of climate-induced price hikes will pose notable challenges for entities like the U.S. Federal Reserve or the Reserve Bank of India, which actively combat inflation, forcing them to consider climate change as a crucial aspect of economic policy.

Looking ahead to 2060, the study predicts a further surge in climate-induced inflation, with global food prices forecasted to climb by 2.2 to 4.3 percentage points annually, resulting in a corresponding 1.1 to 2.2 percentage point surge in overall inflation rates. This aptly illustrates the enduring influence that climate change is poised to exert on inflationary pressures.

The tangible impacts of ‘climateflation’

Climate economist Gernot Wagner from Columbia University's business school, commenting on the findings, termed this phenomenon as "climateflation", emphasising its tangible impact and compelling numbers.

Moreover, the economists at the European Central Bank analysed over 20,000 data points to establish a tangible causal relationship between extreme weather events, particularly heatwaves, and the escalation of prices. Their projections for future climate change scenarios indicate alarming implications for inflation.

While discussions on inflation and climate change often revolve around surging energy costs due to mitigation efforts, the study highlights a broader spectrum of challenges, including productivity shocks and reduced agricultural output resulting from climate-induced weather patterns.

The analysis underscores the repercussions witnessed during Europe's 2022 heatwave, where food supplies were adversely affected, leading to a two-thirds of a percentage point rise in food prices and a one-third of a percentage point spike in overall inflation. Certain regions like Romania, Hungary and southern Europe experienced even sharper price hikes.

As these findings highlight the formidable challenge posed by the looming climate-driven inflation, they also underscore the need for policymakers, economists and environmental advocates to develop resilient strategies that safeguard against future disruptions and ensure a sustainable path forward for our global economy.

The study was recently published in the journal Nature and can be accessed here.