Covid, supply chains, and overspending impact inflation, so does climate change

In the past few weeks, one topic has been on the minds and in conversations of people worldwide - inflation. The subject is crossing borders, reshaping podcasts and articles, prompting various interviews with global leaders and finance experts, and discussed in every possible outlet. The numbers are piling up, and there is undoubtedly a reason for the massive attention. The U.S, for example, has hit a 39-year record, with the consumer price index climbing to 7% in 2021. In Africa, Sudan currently has the highest rate at 41.8% (compared to the previous year) So, what’s behind the most significant inflation in decades? In most articles, interviews, and shows, you’ll hear some variation that includes the following topics: COVID lockdowns, governments giving out “free money,” supply chain challenges caused by substantial spending. And while there is no question that these factors have a crucial role in our current global economy, experts from various fields present another influential element - Climate change. Extreme weather, rising commodities Economists and researchers have been warning the world about the financial aspects of climate change for decades, and it seems as if we have reached a boiling point (pun intended). Now, new research by the European Central Bank (ECB) says that extreme weather events tied to climate change contribute to inflation, among other economic aspects. The first link is hard to ignore; across the world, climate-linked disasters are killing crops, disrupting energy supplies, and crippling transportation lines and supply chains. The most obvious sector to be immediately affected is agriculture. The UN’s Food and Agriculture Organization has reported that world food prices have increased by more than 31% from 2020 to 2021. Need some examples? Last year, the United States suffered through its hottest summer since 1936. In the northern Great Plains, heat, combined with a record-setting drought, gave rise to swarms of grasshoppers that destroyed entire wheat fields. Wheat prices rose to their highest level in years, and corn prices also rose 45 percent. In July, a surprising frost struck Brazil’s coffee belt, hurting Arabica trees. Brazil produces nearly 40 percent of the world’s coffee, and the cold damaged two years of crops. Coffee prices soon leaped, and it is now double their 2020 levels. Global coffee leaders like Nescafé and Folgers plan to raise consumer prices in response. Climate-responsible action have their toll While commodities represent the most basic outcomes of climate change, the link to inflation does not stop there. Rising climate action has a growing toll. The trillions of dollars the public and private sectors are obligated to spend on transitioning from fossil fuels and regulations designed to increase the costs of carbon-intensive goods are shaping future inflation, with effects already noticeable today. After the Paris Agreement was signed in 2015, the United Nations Environment estimated the cost of climate change adaptation in developing countries to be as high as $300 billion per year in 2030 and $500 billion per year in 2050. By November 2021, economists pointed to potential losses of as much as 14%, or $23 trillion, in global GDP by 2050. The longer-term outlook adds disturbing figures, including $69 trillion in global GDP and 83 million lives lost due to global warming by 2100. An important example of how changing policies and spending damages consumers is fossil-fuel supply and demand. Although the world dramatically reduced its investment in oil and gas over the past few years, it did not reduce its appetite for oil. Cars, monster trucks, planes, ships, and factories continue to rule. Oil prices are now at their highest level since 2014, following the big slump of 2020, and energy prices are rising by the day, hitting people’s wallets. Developing nations are hit the hardest ECB researchers found that higher temperatures over recent decades have played a crucial role in driving prices up, especially for emerging economies. As the developing world, particularly Africa, depends on agriculture for large portions of its GDP (23% in Africa), extreme weather conditions and cases have a massive, multiplying effect. And these cases and conditions are on a constant, troubling rise. At the recent COP26, world leaders committed to strengthening their efforts for climate change mitigation and adaptation, sustainable development, and poverty eradication. Addressing the cyclical effects of the global crisis, with current inflation as a perfect example, can diversify the new policies and methods to address climate change. That would be crucial for the entire planet, specifically for developing countries. The writer is an entrepreneur and investor,leading sustainability-driven companies in Africa and the Middle East

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Covid, supply chains, and overspending impact inflation, so does climate change