Fwd: Climate inflation is here
Loretta Lohman
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Researchers are increasingly trying to pinpoint the impact of climate change on the economy. One place where extreme weather is showing up is in grocery bills — but it’s hard to quantify exactly how much. Today’s newsletter looks into the emerging field of climate inflation and how extreme weather is making everything from water bills in the UK to health insurance in India more expensive. Plus, we bring you an update from London climate week. Subscribe to Bloomberg Green for unlimited access to all our stories. Hotter, pricier planetBy Emma Court and Kyle Kim The Iran war is sending a surge of inflation across the global economy, driving up the cost of products ranging from crude oil to swimsuits. Food prices aren’t immune, with increases starting to filter onto supermarket shelves. It’s part of a common pattern. Just look at the roller-coaster ride US shoppers experienced with food prices after major shocks such as Covid-19 — something countries all over the world had to endure.  In the background, a less obvious force is also ratcheting up prices, but its effects risk lasting longer and being harder to predict. Climate change is turning one-off weather shocks into more regular events that can decimate harvests and strain supply chains. As their effects compound, extreme heat and droughts threaten to make climate inflation an economic fixture. Economists predict that the higher temperatures climb, the more bloated household costs like groceries may become. Extreme heat alone could raise global inflation by 0.3 percentage points to 1.2 percentage points a year starting in 2035, according to one study. “You start to have a situation that is more like a new shock happening every year,” says Maximilian Kotz, a researcher at the Barcelona Supercomputing Center who co-authored the study with European Central Bank staff. If this warming becomes permanent or intensifies, “we are likely to face a constant additional upward pressure on prices,” he says.  Kotz’s study is based on projections of what will happen a decade from now, but the world is already getting a taste of what climate inflation looks like. Tomato prices in Mexico have nearly doubled from last year after drought, unseasonal rains and moisture-related disease hit harvests, among other factors. In India, where a heat wave pushed temperatures to 47C (117F) in late April, subdued rainfall expectations for this summer led economists to hike inflation expectations for fiscal year 2027. Higher food prices threaten to weigh down purchasing power in ways that could ripple into the broader economy, says Irene Heemskerk, who leads the ECB’s Climate Change Centre. “If you pay more in the supermarket on only coffee, maybe that’s OK,” she says. But if prices are rising elsewhere too, “that means you have less money to spend on other products. So there will be a very big economic impact.” Economists are still in the early stages of understanding how climate change will shape inflation over time. The models used to make these forecasts are also only as good as the data that underpins them and rely on how prices have behaved in the past, which may change as temperatures rise. So far, many of the price jumps that follow extreme weather appear to last only a year or two — not enduring long enough to typically trigger inflation-busting measures such as raising interest rates. Even if such spikes last longer, as some researchers predict may happen, it’s unclear how long they might persist and how large they could get. Another open question: Can governments, businesses and households blunt climate inflation by adapting? Corporate executives and central bankers in Frankfurt, Seoul and other finance centers are gearing up to contend with climate inflation, adding refrigeration to warehouses and studying how risks such as physical damage from climate change could affect banks’ financial stability. Still, for consumers, a hotter world will likely mean higher prices at the supermarket. Read
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UK water bill shock55% How much residents in England and Wales have seen their water costs rise in the past four years as investments to protect infrastructure from climate change translate into steeper bills. India’s health insurance bills“I received a lot of messages from my team that ‘my eyes are burning, I have a headache, I won’t be able to come to office’” Swapnil Srivastav Co-founder of Kidbea, a children’s clothing company near Delhi Insurance companies are selling new products as climate change and pollution make people sick. London climate weekThe British capital sweltered on Day 2 of London Climate Action Week, as extreme heat across the south of the UK forced schools to shut and disrupted travel. Among topics being discussed was methane. UN Secretary General Antonio Guterres issued a “Call to Action” targeting the greenhouse gas as the world temporarily overshoots the critical warming threshold of 1.5C. Methane is responsible for almost a third of global warming to date, but “remains significantly under-prioritized,” Guterres said. Meanwhile, a coalition of long-term investors representing almost $10 trillion called out the use of metallurgical coal in steelmaking, citing the methane emissions associated with such production. “We urge metallurgical coal and steel companies to improve methane measurement and verification, and advance practical abatement opportunities,” the investors said. This week’s ZeroThe key to tackling climate change is moving away from burning fossil fuels to using renewable energy. But in his book More and More and More, French historian Jean-Baptiste Fressoz argues that the world has never actually managed a successful energy transition before and current plans are unrealistic. Many have taken his writing to mean that stopping global warming is impossible, however, he tells Akshat Rathi this week on Zero, his view is actually quite different. Listen now, and subscribe on Apple, Spotify or YouTube to get new episodes of Zero every Thursday. More from GreenMore from Bloomberg
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