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- Global warming and extreme heat will drive inflation higher, a new study says.
- In the next decade, climate change could bump up food inflation by as much as 3.23% per year and headline inflation by as much as 1.18%.
- "A worst-case emission scenario would cause pressures on food inflation exceeding 4% [per year] across large parts of the world."
Climate change is turning up the heat on inflation.
According to a new study published in the journal Communications Earth & Environment, the effects of global warming and extreme heat are expected to create persistent increases in headline and food inflation.
"We find that the temperature conditions projected for 2035 under future warming imply upwards inflationary pressures across all of the world," the researchers from the Potsdam Institute for Climate Impact Research and European Central Bank wrote.
That could bump up food inflation by as much as 3.23% a year on average globally, and push headline inflation up by as much as 1.18% in the coming decade.
"Beyond 2035 the magnitude of estimated pressures on inflation diverges strongly across emission scenarios, suggesting that decisive mitigation of greenhouse gases could substantially reduce them," they wrote.
Climate change has already begun affecting parts of the economy, driving up the cost of housing in high-climate-risk areas and stoking severe supply shortages in food commodities across the globe, from olive oil to cocoa.
Food is likely to be the largest component of inflation to be impacted, the researchers wrote. The inflationary impact would be lopsided, too, with the largest pressures on countries in Africa and South America.
Those pressures could be curbed with the right policy approach, but the researchers also warned that if emissions are not reduced, it means the inflationary impacts will only worsen.
"Under a best-case emission scenario, exogenous pressures on inflation are only marginally larger in 2060 than in 2035, but a worst-case emission scenario would cause pressures on food inflation exceeding 4% [per year] across large parts of the world," they said.