Climate Change Impact: The Hidden Driver of Rising Prices
Climate Change: A Growing Economic Shock - Inflation, Supply Chain Disruptions & Increased Costs Worldwide.
Image by Елена Кузьмина
The global economy is facing yet another major shock alongside supply chain disruptions and rising inflation: climate change. As severe weather events and shifting climate patterns persist, businesses and consumers worldwide will continue to grapple with the repercussions. The implications for the pandemic-era inflation are significant as energy costs and prices for essential products like fans and air conditioning units soar due to extreme temperatures and disruptions to the food supply chain caused by fires, droughts, floods, and storms drive prices even higher. Moreover, climate-related property damages impact material and construction costs. While geopolitical events also contribute to price increases, the real impact of climate change cannot be ignored.
There is growing recognition that climate change is also an economic problem. Businesses, industry groups, and government agencies are increasingly acknowledging the risks this poses. The U.S. Commodity Futures Trading Commission published a report highlighting climate change as a major threat to the stability of the U.S. financial system and the economy. Central banks, including the Federal Reserve, have started to address climate change concerns in their risk assessments, given its potential financial and economic consequences, including inflation. Supply chain disruptions are expected to become more common as extreme weather events become more frequent, even after the pandemic subsides. The era of climate change brings higher costs of transport and logistics, leading to fundamental changes in sectors such as food and agriculture.
