Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278632 
Year of Publication: 
2023
Series/Report no.: 
ECB Working Paper No. 2821
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Understanding of the macroeconomic effects of climate change is developing rapidly, but the implications for past and future inflation remain less well understood. Here we exploit a global dataset of monthly consumer price indices to identify the causal impacts of changes in climate on inflation, and to assess their implications under future warming. Flexibly accounting for heterogenous impacts across seasons and baseline climatic and socio-economic conditions, we find that increased average temperatures cause non-linear upwards inflationary pressures which persist over 12 months in both higher- and lower-income countries. Projections from state-of-the-art climate models show that in the absence of historically un-precedented adaptation, future warming will cause global increases in annual food and headline inflation of 0.92-3.23 and 0.32-1.18 percentage-points per year respectively, under 2035 projected climate (uncertainty range across emission scenarios, climate models and empirical specifications), as well as altering the seasonal dynamics of inflation. Moreover, we estimate that the 2022 summer heat extreme increased food inflation in Europe by 0.67 (0.43-0.93) percentage-points and that future warming projected for 2035 would amplify the impacts of such extremes by 50%. These results suggest that climate change poses risks to price stability by having an upward impact on inflation, altering its seasonality and amplifying the impacts caused by extremes.
Subjects: 
climate change
climate physical risk
inflation dynamics
JEL: 
Q54
E31
C33
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6084-7
Document Type: 
Working Paper

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