Climate change can trigger inflation in near future — study shows alarming impact

Researchers from Potsdam Institute for Climate Impact Research and the European Central Bank have highlighted how inflation might spiral out of control in a warming world. A recent study examined various shared socioeconomic pathways (SSP) and their potential to trigger inflation.

SSPs are climate change scenarios that take into account socioeconomic factors like population, economic growth, education, urbanisation and the rate of technological development. 

Earlier studies have also looked at how climate change will impact inflation. The recent one, Global warming and heat extremes to enhance inflationary pressures, takes stock of historical weather fluctuations while also taking into account the different impacts of these weather fluctuations across seasons and different regions in the world, according to the researchers.

The study investigated how climate change could increase global food inflation and how this might affect “headline” or overall inflation on a year-on-year basis in terms of percentage. 

Increasing global mean temperatures, frequent heat waves and other factors are already driving up food prices globally, the paper said. The trend of increasing commodity prices might worsen by 2035, the study highlighted. 

The paper looked at SSP8.5 scenarios, which witnesses very high greenhouse gas emissions and carbon dioxide emissions tripling by 2075.

Under the scenario, by 2035, global food inflation can rise by nearly 2 per cent year-on-year and overall inflation can increase by close to 1 per cent every year. 

According to the researchers’ observations of inflation trends, the most significant increases in food and overall inflation will occur in already warm — and in some cases politically unstable — countries such as Iraq, Mali, Mauritania and Saudi Arabia.

Iraq will likely see an annual increase of more than 3 per cent in food commodities through 2035, while overall inflation will exceed 1.5 per cent, according to the study. 

Data accessed by Down to Earth showed, India would be reporting an increase of close to 2 per cent in food inflation and 1 per cent overall inflation by 2035 under SSP8.5 scenario.

The study also highlighted how the heterogeneous impacts of weather fluctuations will play out across different seasons and regions. 

For example, as per the observations, higher latitudinal regions like the United States and Europe would be more vulnerable to inflationary pressure during the summer months. The same trend was observed in Europe during the record summer months of 2022. 

Further, in a damning observation, the study observed that adaptation measures to past as well future climate change has had limited effect on inflationary pressure.