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 a novel instrumental variable approach for the estimation of dynamic causal effects of weather-related disasters on consumer prices. We compute compositional effects by combining monthly granular inflation rates for 12 CPI product categories with weights in consumption baskets from French overseas territories. We find that disasters lead to a maximum rise in consumer prices of 0.5% 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 natural disasters dissipate after four months and differ along the income distribution, notably raising inflation more for low-income households. Evaluating a policy that implemented price caps in 2013, we find that price regulation dampened the price response on impact, but did not prevent prices from adjusting in the long run.

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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:935

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