Global warming may drive up food inflation by as much as 3.2 percentage points a year, based on temperature increases projected for 2035, according to a paper published in the journal Communications Earth & Environment on Thursday. Warming is also projected to cause an overall rise in inflation of up to 1.2 percent annually during that period.
Understanding the links between climate and inflation is important because “rising or unstable prices threaten economic and human welfare as well as political stability,” the authors wrote.
While all countries are likely to experience climate-driven inflation, countries in the global south — especially in Africa and South America — will likely see the most severe effects, the researchers said. But the risk could be mitigated by limiting greenhouse gas emissions and adopting technology-based climate adaptations, they wrote.
The researchers — from the Potsdam Institute for Climate Impact Research, the European Central Bank, and Potsdam University’s Institute of Physics — analyzed weather data from 121 countries between 1991 and 2020 in conjunction with monthly national consumer price indices as well as climate models. They project that rising temperatures will cause increased inflation all year long in low-latitude regions, though only during the summer at higher latitudes.
In addition to increasing temperatures overall, climate change also will amplify the severity and duration of heat waves, which could cause short-term jumps in food inflation. These effects are already being seen. The authors estimate that Europe’s record heat wave in 2022, which may have killed up to 70,000 people, caused food inflation to rise by 0.67 percent. That increase could escalate by as much as 50 percent by 2035 if current warming trends hold, they said.
While the paper didn’t look specifically at why climate change increases food costs, rising temperatures and extreme weather are already responsible for declines in yields, crop losses, and higher labor costs.
Looking beyond 2035, the magnitude of inflation risk varied depending on emissions scenarios, “suggesting that decisive mitigation of global greenhouse gases could substantially reduce [risk],” the authors wrote. Under a best-case scenario for 2060, if emissions did not rise substantially after 2035, climate change would cause only marginally more food inflation than in 2035. But under a worst-case emissions scenario, rising temperatures would cause food inflation of more than 4 percent annually across much of the world, they found.
The paper’s findings were in line with earlier research that has linked climate change to inflation and hot season temperature rises to increased food inflation.
The effect of climate change on inflation could have important implications for monetary policy, the authors wrote, since it would make it more difficult to identify the drivers of inflation using traditional models. Central banks may also need to make policy decisions in response to weather and climate extremes that “can no longer be considered temporary.” And, they wrote, inflation could have negative, and regressive, effects on purchasing power.
“Overall, these results strongly highlight the importance for central banks and macroeconomic modeling in general to consider future climate change in their macroeconomic assessment and forecasting tools,” they wrote.