Saving for sunny days: The impact of climate (change) on consumer prices in the euro area

Paulo Rodrigues, Mirjam Salish and Nazarii Salish

Papers from arXiv.org

Abstract: Climate (change) affects the prices of goods and services in different countries or regions differently. Simply relying on aggregate measures or summary statistics, such as the impact of average country temperature changes on HICP headline inflation, conceals a large heterogeneity across (sub-)sectors of the economy. Additionally, the impact of a weather anomaly on consumer prices depends not only on its sign and magnitude, but also on its location and the size of the area affected by the shock. This is especially true for larger countries or regions with diverse climate zones, since the geographical distribution of climatic effects plays a role in shaping economic outcomes. Using time series data of geolocations, we demonstrate that relying solely on country averages fails to adequately capture and explain the influence of weather on consumer prices in the euro area. We conclude that the information content hidden in rich and complex surface data can provide valuable insights into the role of weather and climate variables for price stability, and more generally may help to inform economic policy.

Date: 2024-01
New Economics Papers: this item is included in nep-eec, nep-env and nep-mon
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