Acceleration by climate change of global economic inflation

Abstract. Regional climate anomalies have historically driven price increases that are followed by social conflict and economic decline. Integrated Assessment Model (IAM) studies of future climate damages to the global economy focus on the real (inflation–adjusted) GDP Y yet provide no direct guidance on the inflationary response. Here, we introduce a highly aggregated framework for the world economy in which inflation naturally emerges as an intrinsic rather than exogeneous property of the macroeconomic system. A quantity "Wealth" is introduced defined as a single time-varying stock of historically cumulative, inflation‑adjusted output W (t) = ∫₀^t Y(u) du. Wealth grows with nominal output Y_N = βW and shrinks with decay at rate γW, so that real output becomes Y = (β − γ) W. In this case, the inflation rate becomes i = 𝚓 / (1 − J) where J = γ / β. Climate damages to Y represented by standard IAM quadratic damage functions are shown to scale with γ. But, even for high-end damages and global mean temperature increases, the inflation increment is small. However, global inflationary shocks cannot be ruled out. Wealth W has been tethered through a scaling factor to the world’s rate of primary energy consumption E. If climate change and other stresses redirect nominal output from civilization expansion to maintenance, and primary energy consumption relaxes from its current expansion rate of ~2 % per year towards stagnation, then J → 1. In this limit, stagflation and even hyperinflation emerge as key economic signatures of climate change, in line with historical evidence, and plausibly emerging this century.