Decomposing the Inflation Response to Weather-Related Disasters

Erwan Gautier, Christoph Grosse Steffen, Magali Marx and Paul Vertier

Working papers from Banque de France

Abstract: This paper provides empirical evidence on the compositional effect of weather-related disasters on consumer prices. We combine data on monthly granular inflation for 12 CPI product categories with data on extreme weather events for four French overseas territories sporadically hit by large weather-related disasters. We find that disasters lead to a maximum rise in consumer prices of 0.5 percent with substantial heterogeneity in the price response. An immediate strong surge in the prices of food, and notably of fresh products, is partially offset by a decline in the prices of manufactured products and services. The effects of weather-related disasters dissipate after four months and differ along the income distribution, notably raising inflation for low-income households by more. Price controls dampen the price response on impact, but lead to similar adjustments in the price level after six months.

Keywords: Natural Disasters; Extreme Weather; Inflation; Disaggregate Inflation; Inequality; Price Gouging (search for similar items in EconPapers)
JEL-codes: E31 Q54 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2023
New Economics Papers: this item is included in nep-agr, nep-env and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:935

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