Climate change driving up inflation in food prices: Study

Rising global temperatures are associated with inflation in food prices, both in regions that are already hotter and in countries outside the tropics like the U.S., according to a study published in the journal Communications Earth & Environment.

Researchers from the Potsdam Institute for Climate Impact Research and the European Central Bank studied monthly price indexes between 1996 and 2021 in 121 countries. The study found food prices are the monthly inflation signal most strongly associated with the climate, which researchers attributed to the supply shocks associated with temperature increases. Both new milestones for extreme heat and shifts in average temperatures are associated with longer-term inflation. In European countries, where the summer of 2022 broke temperature records, that heat was accompanied by food inflation increases of 0.43 percentage points to 0.93 percentage points.

The research also projected that between now and 2035, those same temperature increases could lead to “climateflation” increases of up to 3 points. The same European food inflation driven by last year’s extreme heat in Europe would be amplified 30 percent to 50 percent in 2035, according to modeling for that year’s temperature increases.

The impact is especially keenly felt in countries at lower latitudes that are already hotter than average and closer to temperatures that make it harder to sustain agriculture.

“With the intensity of hot extremes and their impacts on inflation being amplified with continuing climatic change, while being unpredictable in the medium- to longer-term, this relationship is set to increase inflation volatility,” researchers wrote. “This in turn may pose challenges to inflation forecasting and monetary policy, likely increasing the difficulty of identifying temporary supply shocks and disentangling them from more persistent drivers.”

The research is the latest indication that on top of natural disasters, climate change carries numerous financial costs and risks. An October study found that climate disasters cost nearly $400 million a day over a 20-year period.