The Relathionship Between Inflation & Climate Change

How Our Economy is Affected by Extreme Weather & What We Can do About it

Inflation has been a topic on many minds and an issue affecting many of our purses in recent months. Climate change is an urgent concern for many of us around the world. Unsurprisingly, these two may have a relationship–as so many of our big issues do. 

Emerging research shows us that climate change impacts economies around the world. Extreme weather, an outcome of climate change, is a clear contributor to inflation, driving already high prices even higher. This can be everything from food and clothing to electronics. Climate-driven disasters have been negatively affecting crop production around the globe, which has a cascading effect on many other industries and economies.

The trend will likely continue as the world heats up. 

So far, estimates show that climate disasters have cost North America $415 billion. This is mostly due to wildfires, droughts, and hurricanes. Every degree Celsius that the Earth warms, there’s an estimated 5 to 15 percent decrease in overall crop production.

For example, farmers in Texas abandoned 74% of their planted crops, or more than 6 million acres, due to extreme heat and dry soils. Texas is the largest producer of cotton, meaning that prices spiked on everything from cotton balls to diapers and tampons.

Outside of the United States, many countries are also feeling the effects of inflation from the changing climate. The European Central Bank did a study on the relationship between climate change and inflation. They found that, similarly to the U.S., higher than average temperatures are driving up food costs along with other goods and services. The increase in these prices sends a ripple effect throughout the economy. 

Around Europe, dairy and meat prices continue to rise as droughts dry out grazing and grain lands. In the U.S., wheat fields in Kansas, Oklahoma, Nebraska have also seen harsh droughts. Historic rains and floods in the Northeast, North Carolina, Europe, and South Korea have caused destruction that demonstrates how ill-equipped our infrastructure is to withstand climate change impacts.

After accounting for other factors such as Covid-19 and Russia’s war on Ukraine, the researchers estimated that extreme heat alone boosted inflation in Europe by 0.67 percent.

Economic Projections For Climate Change Related Inflation

They then combined those historic estimates with future climate scenarios to predict how climate change could affect inflation moving forward. According to their projections, rising temperatures and other extreme climate situations could increase global inflation by as much as 1 percent every year until 2035. When they examined food inflation specifically, they found that future warming could drive up prices by as much as 3 percent.

The extent of which climate-related shocks affect inflation and economic growth depends on multiple factors including a country’s economic resilience, or lack of it, and the country’s fiscal and institutional capacity to support recovery.

The Need for Sustainable Businesses

Businesses around the world are becoming increasingly aware of the need for sustainability. Consumers are demanding it. It seems like an obvious step in the process. However, it’s not an easy one. While some companies have jumped on the sustainability bandwagon mostly to improve public perception or increase sales to consumers who desire sustainability, many are recognizing the importance of it, if not for their role in caring for the planet and climate, at least because of the financial risks of not prioritizing some kind of sustainability. 

For businesses, the message is becoming crystal clear: plan for climate-related inflation or suffer the consequences later. That doesn’t just mean creating financial models that account for rising operating costs and passing those costs on to consumers. Rather, it suggests resisting the urge to focus on recessionary fears, and instead, truly committing to the planet. 

Planetary livability should be the top priority. Reaping the economic benefits of this commitment should come after, as more sustainable companies tend to see positive outcomes like better brand value, stronger customer demand, and healthier market valuations.

Accenture, a global professional services firm, projects that 93% of companies must at least double the pace of emissions reduction by 2030 to meet their goals.

A Livable Planet & A Healthy Economy

Economists are worried about climate change and how it will affect the economy, and this concern is indicative of a much greater concern than just how expensive it is for us to live on a continually warming planet. How will we survive at all on a too-hot, natural disaster-prone planet?

There are many steps we must begin taking now to confront climate change and consequently, the economy. Companies need to commit to sustainable practices, as well as carbon insetting and offsetting. As consumers, we can continue to demand and support brands and companies that have true sustainability efforts in place. Producers Trust is here to make this part easier. With our traceability tools and our ever-expanding networks, we are here to share verified sustainability data with consumers and provide a platform for brands to share from. 

Regenerative agriculture is another game-changer. Conventional agriculture methods are wreaking havoc on our earth’s soil, water, air and climate. Regenerative agriculture methods are not only easier on the soil, but they actually sequester carbon and heal soils. Producers Trust has connections all over the world of regenerative projects that our followers can plug into, learn from, and support–from Egypt to India to Colombia. 

We invite you to learn more: browse through our marketplace platform, check out our articles about related topics, and engage with the inspiring producers and farmers we are connected to.