Central banks have started to deal with the impact of climate change or inflation, short “climateflation”. New and additional inflationary pressures originate in climate change and global warming and they necessitate a closer scrutiny. Heat waves, like 2026-6 in Europe, or earlier ones have created an upward pressure on prices. Loss of agricultural production can be severe due to weather extremes which occur more often and with greater intensity. Such extended hot and dry climates reduce the production of crops and spikes in prices that only reluctantly return to average levels shall cause price inflation (climateflation). These are the short term impacts.
The medium run impacts alter price relations and valuations of in sectors like housing and infrastructure. Badly isolated stocks of housing, schools or hospitals depreciate valuations and the heavy investments needed for isolation of roofs, walls and widows as well as heat pumps to produce cooling shall be in very high demand, which makes price increases more likely across the construction sector. As we expect new devices to be “AI-intelligent”, “mem-flation” will be pushed up as well. These factors can give a push to some economies which are producers of the products in high demand and able to expand production rapidly as well. Just importing higher numbers of air-conditioning systems from other countries shall worsen trade balances.
The major challenge, however, remains our inaction to stop global warming to avoid additional economic and human losses related to climateflation.
