“Climateflation,” a term coined by climate economist Gernot Wagner, has begun to gain recognition in the field of climate studies. The term refers to the predicted increase in inflation due to human-induced climate change, a concept highlighted in a recent study. The Potsdam Institute for Climate Impact Research and the European Central Bank together conducted this groundbreaking study.
The research suggests that we may see an increase in food prices and other goods worldwide by as much as 3 percentage points per year because of climate change. Using over 27,000 observations of monthly price indices across 121 countries, researchers found little evidence to suggest that adapting to climate change would reduce the impending inflationary pressures.
The study goes on to predict that inflation will increase in already-warm countries and during extreme heat events in areas like the U.S. and Europe. This is due to the expectation of more frequent global heatwaves sparked by climate change. By 2035, the researchers anticipate that overall inflation will increase by 0.8 to 0.9 percentage points solely due to extreme weather conditions caused by climate change.
Looking further ahead, the study forecasts even more staggering inflation rates. By 2060, the research predicts a 2.2 to 4.3 percentage points annual increase in global food prices due to climate change. This would result in a 1.1 to 2.2 percentage point increase in overall inflation.
The research paper identified a real-world causal link between extreme weather, particularly heat, and rising prices. This phenomenon is what it refers to as “climateflation.” Gernot Wagner, the economist who coined this term, was not involved in the study. However, he emphasized the seriousness of climateflation, stating that it could become a significant part of the Federal Reserve’s considerations within a decade.
The implications of climateflation are vast and wide-ranging. They serve as a stark reminder of the economic consequences of climate change, beyond the more commonly discussed environmental impacts. It’s clear that human-induced climate change could have a profound influence on our economies, and these findings underline the urgency to address this pressing issue.
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