Climate change to keep inflation high: European Central Bank's latest report

Did you know climate change is a secret driver of inflation? As per European Central Bank's data driven research from 121 countries, climate change is likely to be a big contributor to global inflation in the next decade. As temperatures rise, the impact on inflation will be more.

In the report published this week, analysts predicted rising temperatures mean annual inflation will be between 0.32 to 1.18 percentage points higher by 2035. That will create problems for consumers as well as policy makers, with the ECB’s target to keep inflation at 2%.

The research paper found that warmer temperatures will boost annual food inflation by between 0.92 and a hefty 3.23 percentage points.

“Climate change poses risks to price stability by having an upward impact on inflation,” said the researchers Maximilian Kotz, Friderike Kuik, Eliza Lis and Christiane Nickel. That would “place global incomes under pressure from rising prices and could impact inflation expectations, thereby requiring monetary policy to react.”

ECB uses monthly data from 121 countries on consumer price indexes and climatic conditions. They use indicators based on monthly and daily temperatures, excess wet and drought conditions, and extreme daily rainfall.