Aug 18, 2022 - Economy

Climate change is a secret driver of inflation

Illustration of a price tag on fire.

Illustration: Shoshana Gordon/Axios

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

Why it matters: Heavy rainfall, flooding, heat waves and droughts erode agriculture, infrastructure and workers' ability to stay on the job — all of which lead to supply-chain breakdowns and worker shortages.

Driving the news: Chip and solar panel factories in one of China's key manufacturing regions just shut down, as the country tries to ration power during a 60-year record heat wave.

  • Dairy and meat prices in Europe are rising even higher as droughts zap lands meant for grazing and growing grain for feed.
  • In the U.S., wheat fields in Kansas, Oklahoma, Nebraska and cotton harvests in Texas have also been withering due to drought.
  • And in California, production of processed tomato products are suffering due to a lack of rain while workers are starting to walk off the job at an Amazon delivery hub partially in protest of heat exhaustion.
  • Destruction from historic rains and floods in the Northeast, North Carolina, Europe and South Korea demonstrates how ill-equipped our infrastructure is to withstand climate change impacts — and how difficult it is for communities to rebuild, let alone get back to work.

Between the lines: Extreme weather is affecting both the supply and demand sides of the economy, Tamma Carleton, a professor of environmental economics at UC Santa Barbara, tells Axios.

  • Research hasn't yet quantified the exact impact extreme weather has on inflation. Some changes, such as the price of agriculture, are easier to pin down, while others — such as worker productivity — are harder to detect.
  • When people take longer breaks to recover from heat exhaustion, or leave 15 minutes early, for example, it adds up day after day, Carleton said.

The big picture: As the pandemic has shown, disruption to supply chains and workers' productivity drives up the cost of doing business. And one way or another, companies pass those costs onto consumers.

  • Workers facing more strenuous conditions tend to command a higher wage, Solomon Hsiang, a professor of public policy at UC Berkley, says.
  • And if companies have to pay more to protect them or install new equipment like air conditioning in warehouses, "someone's got to pay and at the end of the day that someone is usually the consumer."

Threat level: Long-lasting heat waves like the ones in the U.S. and China are expected to become more commonplace — just as global inflation is leading to a slowdown of economic growth.

Go deeper: How jobs will change with a warming world

Go deeper