Food inflation expected to rise due to climate change
Increasing temperatures and extreme weather events are expected to have a major impact on agriculture worldwide, according to new research from environmental scientists. Researchers at the Potsdam Institute for Climate Impact Research, or PIK, analyzed historical food prices across various food categories and countries globally, looking at the impact of climatic fluctuations on food inflation and the potential implications of future climate change. They found that annual food inflation will rise by 3.2 percent per year and overall inflation by 1.18 percent per year by 2035. All nations will be impacted, while hot regions and summers will see the most significant repercussions, the study showed. "Looking at over 27,000 observations of historical data, we found that increases in temperatures can increase food prices, particularly in hot regions and seasons," said Max Kotz, a co-author of the study. "Under future climate conditions, these impacts could become large, approximately 1 to 3 percent points per year on food inflation by 2035, threatening the price stability mandates of central banks such as the ECB (European Central Bank), which aims to keep inflation below 2 percent," he said. The report highlighted how rising or unstable prices jeopardize human welfare and economic and political stability, pointing to United Nations data showing that the cost-of-living crisis in 2021/22 resulted in 71 million more people falling into poverty globally. Increases in temperatures, particularly in hot regions and summers, lead to heightened inflation levels, which are more pronounced in lower latitudes like Africa and South America, the study found. Regions at higher latitudes experience seasonal peaks, predominantly in the summer months. Data showed that a 1 C rise in average monthly temperatures affects prices for nearly a year, similarly to excess rainfall. However, price impacts resulting from excessive drought are only temporary. Researchers examined the extremely hot European summer of 2022, when heat and drought had far-reaching effects on agriculture and the economy. Kotz said: "We estimate that the 2022 summer heat extreme increased food inflation in Europe by about 0.6 percent. Future warming projected for 2035 would amplify the impacts of such extremes by up to 50 percent. These effects are very relevant for currency unions with a 2 percent inflation target, such as the eurozone, and will continue to increase with future global warming."