Climate change is a secret driver of inflation

Extreme weather worsened by climate change is a hidden cause of inflation, threatening to drive up the already high prices of everything from food and clothing to electronics.

Why is this important: Heavy rains, floods, heat waves and droughts erode agriculture, infrastructure and the ability of workers to stay on the job, leading to supply chain disruptions and labor shortages work.

Driving the news: Chip and solar panel factories in one of China’s main manufacturing regions have just closed, as the country tries to ration electricity during a record 60-year heat wave.

  • Dairy and meat prices in Europe are rising even further as droughts ravage land used for grazing and growing grain for food.
  • In the United States, wheat fields in Kansas, Oklahoma, Nebraska and cotton crops in Texas have also withered due to drought.
  • And in California, production of processed tomato products is suffering from a lack of rain as workers begin to walk off work at an Amazon delivery center, in part to protest heat exhaustion.
  • The destruction caused by historic rains and floods in the Northeast, North Carolina, Europe and South Korea show how ill-equipped our infrastructure is to withstand the impacts of climate change – and how it is difficult for communities to rebuild, let alone get back to work.

Between the lines: Extreme weather affects both the supply and demand side of the economy, Tamma Carleton, professor of environmental economics at UC Santa Barbara, told Axios.

  • Research has yet to quantify the exact impact of extreme weather on inflation. Some changes, like the price of agriculture, are easier to pinpoint, while others, like worker productivity, are harder to detect.
  • When people take longer breaks to recover from heat exhaustion or leave 15 minutes earlier, for example, it adds up day after day, Carleton said.

The big picture: As the pandemic has shown, disruption to supply chains and worker productivity drives up the cost of doing business. And somehow, companies pass those costs on to consumers.

  • Workers facing harsher conditions tend to demand higher pay, says Solomon Hsiang, a UC Berkley professor of public policy.
  • And if businesses have to pay more to protect them or install new equipment like air conditioning in warehouses, “someone has to pay and ultimately someone is usually the consumer.”

Threat level: Long-lasting heat waves like those in the United States and China are expected to become more common, as global inflation leads to slower economic growth.

Go further: How jobs will change with a warming world