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Abstract

Understanding of the macroeconomic effects of climate change is developing rapidly, but the
implications for past and future inflation remain less well understood. Here we exploit a global
dataset of monthly consumer price indices to identify the causal impacts of changes in climate
on inflation, and to assess their implications under future warming. Flexibly accounting for
heterogenous impacts across seasons and baseline climatic and socio-economic conditions, we
find that increased average temperatures cause non-linear upwards inflationary pressures which
persist over 12 months in both higher- and lower-income countries. Projections from state-of-
the-art climate models show that in the absence of historically un-precedented adaptation, future
warming will cause global increases in annual food and headline inflation of 0.92-3.23 and
0.32-1.18 percentage-points per year respectively, under 2035 projected climate (uncertainty
range across emission scenarios, climate models and empirical specifications), as well as
altering the seasonal dynamics of inflation. Moreover, we estimate that the 2022 summer heat
extreme increased food inflation in Europe by 0.67 (0.43-0.93) percentage-points and that
future warming projected for 2035 would amplify the impacts of such extremes by 50%. These
results suggest that climate change poses risks to price stability by having an upward impact on
inflation, altering its seasonality and amplifying the impacts caused by extremes.