[Global Focus] "Climateflation" Becomes Reality... Shaking Everything from Grocery Baskets to Central Banks

Cabbage, Potatoes, Chocolate...
Abnormal Weather Drives Up Grocery Prices
Prices That Can't Be Controlled by Interest Rates...
Central Banks Face Tougher Dilemmas
A $1 Trillion Bill Left by Climate Disasters...
Climate-Driven Price Shocks W

In South Korea, the phenomenon of "heatwave = soaring cabbage prices = gold cabbage" has already become something of a rule. This year was no exception. According to the Korea Agro-Fisheries & Food Trade Corporation (aT) and the Korea Agricultural Marketing Information Service (KAMIS), at the end of July, retail cabbage prices nearly doubled per head due to the effects of the heatwave and heavy rainfall. South Korea, with its well-developed kimchi-making culture, is particularly sensitive to cabbage prices. In a report, the Korea International Trade Association referred to this phenomenon as "climateflation," noting that retail cabbage prices in South Korea have often surged close to 10,000 won per head, giving rise to the nickname "gold cabbage." Climateflation is a portmanteau of "climate" and "inflation," and refers to price increases caused by climate change.

Such inflationary pressure stemming from the climate crisis is directly linked to the interest rate policies of central banks in various countries, deepening the concerns of monetary authorities. There are projections that as climate change intensifies, a vicious cycle of "natural disasters → rising prices → increased interest rate burden" will become entrenched.

Cabbage, Potatoes, Chocolate... Extreme Weather Threatens Grocery Prices

Price instability in agricultural products caused by abnormal weather is already shaking household grocery costs worldwide. According to the Barcelona Supercomputing Center (BSC) in Spain, prices of major food items such as potatoes, rice, onions, lettuce, and fruit have surged in conjunction with climate shocks like heatwaves, droughts, and heavy rains. Dr. Maximilian Koetz of BSC told The Wall Street Journal (WSJ), "Until carbon emissions reach net zero, extreme weather events will become even more severe, and they are already causing crop damage and food price increases around the world."

These statistics are also confirmed by real-world cases. In 2022, droughts in California and Arizona led to an 80% year-on-year surge in vegetable prices by November of the following year. In Ethiopia, food prices jumped 40% in March 2023 due to the aftermath of a 2022 drought. The United Kingdom experienced record rainfall in the fall of 2023, resulting in a 22% increase in potato prices over 13 months through February 2024. In addition, the heatwave that swept across Europe in 2022 reduced food supplies, pushing up food prices by 0.66 percentage points and overall inflation by 0.33 percentage points. In some regions, such as Romania, Hungary, and parts of Southern Europe, the increases were even greater.

Supply shocks caused by abnormal weather also impact luxury foods like coffee and chocolate. When supply chain disruptions occur, the prices of foods made from these raw materials rise in succession. In February 2024, major cocoa producers Ivory Coast and Ghana were simultaneously hit by record high temperatures and prolonged droughts, causing cocoa supplies to plummet. As a result, within just two months, cocoa prices more than tripled, and chocolate prices at UK retailers rose by 18% year-on-year.

The fact that short-term weather fluctuations affect coffee bean prices, which in turn impact coffee prices, is well illustrated in "If It Rains in Brazil, Buy Starbucks Stock," a book by Peter Navarro, trade and manufacturing advisor to the White House. When extreme weather events such as heavy rain, drought, or frost occur in Brazil, the world's largest producer of Arabica coffee beans, supply drops sharply. This immediately leads to a spike in international coffee futures prices. Interpreted in the context of climate shocks, the implication of Navarro's book is that a climate shock → rise in coffee bean prices → cost pressure for chains like Starbucks → increase in retail prices → greater burden on consumers → slowing demand → worsening corporate performance, creating a chain reaction. This demonstrates that climate risk poses structural dangers not only to the prices of real resources but also to the performance of global companies.

Indeed, when Brazil suffered its worst drought in the fall of 2023, global coffee prices soared by 55% year-on-year by early 2024. In Vietnam and other parts of Asia, Robusta coffee prices doubled in July 2024 alone due to heatwaves. Scientists have analyzed that these surges are rooted in abnormal weather events caused by climate change.

Prices Central Banks Can't Control... Monetary Authorities Face Dilemma

Soaring grocery prices are not just an issue of cost; they also threaten the health of low-income groups. Because nutrient-rich foods are on average more than twice as expensive per calorie, price increases naturally lead low-income individuals to reduce their intake of fruits and vegetables. This raises the risk of malnutrition, cardiovascular disease, diabetes, cancer, and other chronic illnesses, and can also worsen mental health. TIME magazine pointed out that the rising cost of nutrient-dense foods places a particularly heavy burden on low-income groups, and that in situations of limited budgets, people inevitably turn to cheaper, high-calorie, low-nutrition foods.

Such surges in food prices also become a variable in the conduct of central bank monetary policy. Inflationary pressures make it harder to achieve price stability targets. In this sense, climateflation is emerging as a new structural driver of inflation.

The journal Nature, in a 2023 study, confirmed that high temperatures can stimulate food and overall price indices and exert sustained inflationary pressure for up to 12 months. The study also noted that the impact is greater in lower-latitude regions. Nature projected that by 2035, food inflation could rise by 0.92 to 3.23 percentage points annually, and overall inflation by 0.32 to 1.18 percentage points.

There are also arguments that conventional interest rate policies alone are insufficient to control this climate-driven inflation. Climate disasters generally involve supply-side shocks, which may not be resolved by the central bank's traditional demand-suppression tool of raising interest rates. For example, if heatwaves or floods destabilize agricultural supply, food prices surge, quickly driving up overall prices. However, responding to such cost-push inflation by raising interest rates could simply increase the risk of economic recession.

Sarah Breeden, Deputy Governor of the Bank of England, expressed these concerns in an interview with the Financial Times (FT). She warned, "Climate change can affect prices through supply shocks, and this can create situations that are difficult for central banks to manage."

A $1 Trillion Bill Left by Climate Disasters... Climate-Driven Price Shocks to Persist

The cost losses are enormous. According to Bloomberg Intelligence, the United States spent about $1 trillion in 2024 alone on recovery from climate disasters such as wildfires and floods. The Institute of Labor Economics (IZA) in the United States analyzed that wildfire smoke has negatively affected residents' health, leading to job and wage losses. The researchers stated, "In years with frequent wildfires, the total income of all U.S. workers fell by about 2% ($125 billion), with older workers suffering the most."

The problem is that climate-driven inflation is likely to intensify further in the future. The United Nations Environment Programme (UNEP) has warned that if current trends continue, the global average temperature could rise by 2.2 to 3.4 degrees Celsius by the end of the 21st century. This means there is a risk that unprecedented climate events and food price shocks will persist over the long term.