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(Boursier.com) — Climate change will raise global inflation by up to one percentage point each year as food prices rise, according to new research from the European Central Bank. In a report published this week and picked up by ‘Bloomberg’, ECB researchers say rising temperatures would mean annual inflation would be 0.32 to 1.18 percentage points higher per year by 2035. This will create problems for consumers as well as policymakers, as the ECB’s aim is to keep inflation at 2%.
“Climate change poses risks to price stability by having an upward impact on inflation,” say researchers Maximilian Kotz, Friderike Kuik, Eliza Lis and Christiane Nickel. This “would put global incomes under pressure from higher prices and could impact inflation expectations, forcing a monetary policy response.”
Warmer temperatures will raise annual food inflation by 0.92 to 3.23 percentage points, the paper said. If the south, where temperatures are warmer, is expected to face more suffering, it will also mean particular challenges for economic blocs such as the European Union. Indeed, climatic variations are likely to widen price differences within the region.
The research, which assumes there will be no new technologies that will contribute to the need for “historically unprecedented” climate adaptation, comes at a time when governments and investors are increasingly interested in how climate change affects the economy as a whole.
ECB teams also indicate that higher temperatures will alter the seasonality of inflation. “The chaotic nature of temperature anomalies implies short-term and faster price increases from exceptionally hot summers like Europe in 2022…Such additional price shocks – occurring at unpredictable intervals but with increasing intensity – would pose additional challenges for monetary policy”.
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