The latest working paper published by the European Central Bank (ECB) predicts that future warming of the planet will result in higher levels of annual food prices and overall inflation on a global scale.
The paper also reveals that the extreme heat in the summer of 2022 led to a surge in food inflation across Europe, with an estimated impact ranging between 0.43% and 0.93%.
The working paper collected monthly data from 121 counties on consumer price indexes and climatic conditions, indicating that by 2030, the impacts of extreme weather events are expected to be amplified by 50% as a result of global heating. It cautions that these findings indicate climate change presents risks to maintaining stable prices as it exerts an upward impact on inflation, modifies its seasonal patterns and intensifies the effects brought about by extreme events.
According to the report, if significant adaptation measures are not taken, future global warming will result in annual increases in both food and headline inflation worldwide. These increases are projected to range between 0.92% and 3.23 per year for food and 0.32% to 1.18% for headline inflation, based on anticipated climate conditions for 2035.
The report’s findings corroborate calls by the Intergovernmental Panel on Climate Change for financial regulators to start addressing the underpricing of climate-related risks. The report is published at a time when Europe, as well as many other parts of the world, are in the midst of another drought. In May, Spain and Italy approved unprecedented emergency funds in response to droughts and the need for further support in the agriculture sector.
The relationship between global heating and inflation was discussed at length during the recent Green Swan conference. The conference convened major figures in the world of central banking and regulation where Nicholas Stern of the London School of Economics pointed to last year’s floods in Pakistan as another example of the human and macro-financial cost of climate change.
This page was last updated June 5, 2023
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