According to the ECB study, rising inflation will cause challenges for both consumers and policymakers
According to new European Central Bank (ECB) research, climate change would increase global inflation by up to one percentage point per year as food prices rise.
According to a survey released this week, rising temperatures will cause yearly inflation to rise by 0.32 to 1.18 percentage points by 2035. With the ECB's aim of keeping inflation at 2%, this will cause challenges for both consumers and policymakers.
According to a survey released this week, rising temperatures will cause yearly inflation to rise by 0.32 to 1.18 percentage points by 2035. With the ECB's aim of keeping inflation at 2%, this will cause challenges for both consumers and policymakers.
Researchers Maximilian Kotz, Friderike Kuik, Eliza Lis and Christiane Nickel revealed that climate change endangers price stability by causing inflation to rise. This would put global incomes under pressure from rising prices and could affect inflation expectations, necessitating monetary policy action.
Warmer temperatures will increase yearly food inflation by 0.92 to 3.23 percentage points, according to the study. While the so-called global south, where temperatures are higher, will bear the brunt of the hardship, economic blocs such as the European Union will have unique hurdles. This is because climate change is projected to widen pricing disparities within the region.
The study, which assumes there would be no new technology to aid with the requirement for "historically unprecedented" climate adaptation, comes at a time when governments and investors are becoming more interested in how climate change is affecting everything.
Higher temperatures, according to the ECB researchers, will also modify the seasonality of inflation.
“The chaotic nature of temperature anomalies implies short-term, more rapid prices rises from exceptionally hot summers such as in Europe in 2022,” the paper said. “Such additional shocks to prices — happening at unpredictable intervals but with increasing intensity — would pose additional challenges to monetary policy.”