Over the past few weeks, one topic has been on the minds and in the conversations of people around the world – inflation. The topic crosses borders, reshapes podcasts and articles, sparks various interviews with world leaders and financial experts, and is discussed in every possible media outlet. The numbers are piling up and there is undoubtedly a reason for this massive attention. The United States, for example, hit a 39-year high, with the consumer price index climbing to 7% in 2021. In Africa, Sudan currently has the highest rate at 41.8% (per compared to the previous year).
So what’s behind the biggest inflation in decades? In most articles, interviews, and shows, you’ll hear variations that include the following topics: COVID lockdowns, governments giving out “free money”, supply chain challenges caused by substantial spending.
And while there is no doubt that these factors play a crucial role in our current global economy, experts from various fields present another influential element: climate change.
Extreme weather, rising commodities
Economists and researchers have been warning the world about the financial aspects of climate change for decades, and it looks like we’ve reached a boiling point (pun intended). Today, a new study from the European Central Bank (ECB) indicates that extreme weather events linked to climate change contribute to inflation, among other economic aspects.
The first link is hard to ignore; Around the world, climate-related disasters are killing crops, disrupting energy supplies, and crippling transmission lines and supply chains. The most obvious sector to be immediately affected is agriculture. The Food and Agriculture Organization of the United Nations reported that global food prices increased by more than 31% between 2020 and 2021.
Need examples? Last year, the United States experienced its hottest summer since 1936. In the northern Great Plains, the heat, combined with record drought, caused swarms of locusts that destroyed entire wheat fields. Wheat prices hit their highest level in years, and corn prices also rose 45%. In July, a surprising frost hit Brazil’s coffee belt, injuring Arabica trees. Brazil produces nearly 40% of the world’s coffee and the cold has damaged two years of harvests. Coffee prices have surged rapidly, and they are now double their 2020 levels. Global coffee leaders like Nescafé and Folgers plan to raise consumer prices in response.
Responsible climate actions have their consequences
While commodities represent the most basic results of climate change, the link to inflation does not end there. Increasing climate action is having a growing impact. The trillions of dollars that the public and private sectors are forced to spend on the transition from fossil fuels and regulations designed to raise the costs of carbon-intensive goods are shaping future inflation, with effects already noticeable today. today.
After the signing of the Paris Agreement in 2015, the United Nations Environment has estimated that the cost of adapting to climate change in developing countries could reach 300 billion dollars per year in 2030 and 500 billion dollars per year in 2050. In November 2021, economists highlighted the potential for losses of up to 14%, or $23 trillion, in global GDP by 2050.
The longer-term outlook adds worrying numbers, including $69 trillion in global GDP and 83 million lives lost due to global warming by 2100. An important example of how changing policies and spending is hurting to consumers is the supply and demand for fossil fuels. Although the world has significantly reduced its investment in oil and gas in recent years, it has not reduced its appetite for oil. Cars, monster trucks, planes, ships and factories continue to rule. Oil prices are now at their highest level since 2014, after the great crisis of 2020, and energy prices are rising day by day, hitting people’s wallets.
Developing countries are hardest hit
ECB researchers have found that higher temperatures in recent decades have played a crucial role in driving up prices, especially for emerging economies. As the developing world, especially Africa, depends on agriculture for a large portion of its GDP (23% in Africa), extreme weather conditions and events have a massive multiplier effect. And these cases and conditions are on a steady and troubling increase.
At the recent COP26, world leaders pledged to strengthen their efforts for climate change mitigation and adaptation, sustainable development and poverty eradication. Tackling the cyclical effects of the global crisis, with current inflation as a prime example, can diversify new policies and methods to combat climate change. This would be crucial for the whole planet, especially for developing countries.
The author is an entrepreneur and investor, leading sustainability-focused businesses in Africa and the Middle East