Climate Change and Higher Costs
Americans have just lived through a period of the highest rate of inflation in decades. Price dynamics have various drivers, but there’s one that shows little sign of slowing down: climate change.
Climate change may be fueling inflation, according to a new study published by science journal Nature , a phenomenon referred to as climateflation.
Rising temperatures and increasing counts of extreme weather events, including very high or low temperatures, as well as draughts and floods, are putting global supply chains at risk, upping the risk for shortages, and rising prices.
What Does This Mean?
Data based on weather conditions and prices in 121 countries from 1996 to 2021 — shows that temperature increases can cause persistent increases in food inflation. This may be due to crop shortages and diminished productivity caused by higher temperatures, effects that are especially pronounced in lower latitude regions. This latest study predicts food inflation could surge as much as 3 percentage points annually.
This could have major policy implications. For reference, the Federal Reserve, which has been fighting America’s recent bout of inflation with high interest rates that are yet to come down, has a mandate to keep prices stable, and a target inflation rate of 2%.
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