| 19 Mar 2026
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) = ∫0t Y(u) du. Wealth grows with nominal output YN = 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.
I agree with the authors that the impact of climate on prices is somewhat less covered than the impacts on real output, and that omission may be important.
I think that is roughly my one area of agreement. This paper does not cover:
The problem starts with equation 7. The substitution of nominal GDP for real here is incorrect without a view on the role of the price level on wealth. The outstanding stock of wealth is revalued by changes to the price level and reduced by depreciation. The value of the knowledge of making a sandwich is properly expressed in today’s price level, not the price level in the C18th when the Earl of Sandwich fancied a bit of roast beef and didn’t want to get his cards greasy.
This error leads to a view of stagflation. Yet over the long run of human history, the price level and output are positively correlated. In the short-term, growth and inflation are also positively correlated as well. There are a few, isolated, incidents of stagflation due to negative supply shocks. Here there is much more interest in terms of climate. Indeed, the bulk of the literature on the inflation impacts of extreme weather events find higher food prices. But lower wealth also reduces demand, and there are many well-known papers in that literature that point to the balance of supply versus demand being important in determining overall inflation impacts. None of those papers are cited or discussed in the present paper.
First order, an expected doubling of the price level has no impact on welfare, and the conditions in which there would be some welfare impact are impossible to conclude from the presented model.
Finally, with regards notation, in a paper on inflation, perhaps reserve pi for this purpose.