Climate Change Weekly #502: Climate Change Is Not Causing Inflation

A recent study in the journal Nature: Communications Earth and Environment claims climate change is contributing to price inflation. The study’s authors say they found climate change harms economic productivity and food production, leading to higher prices. They examined more than 27,000 monthly consumer price index data points around the globe.

I can’t begin to describe all the ways this claim is not just outright false but is misleading in a manner clearly intended to motivate restrictions on fossil fuel production and use, policies which would in fact increase energy prices, harm food production, and result in lost jobs, higher prices, and lower incomes. Policymakers taking this study seriously might impose policies which themselves would result in worse inflation than the world is currently experiencing, which is in part due to existing climate policies.

An article by the editorial board of the journal Issues & Insights, “Have We Reached Peak Climate Nuttery?” captures the foolish nature of this claim well. To be fair, I can’t say that linking climate change to inflation is the nuttiest purported connection I’ve seen made by some scientists and the media. After all, at one time or another some have asserted climate change is contributing to divorce, mental illness, hyperactivity, childhood attention deficit disorder, rising crime, rising drug use, “cultural erosion,” and the increased likelihood of space satellite collisions, among myriad other purported harms, all of which are completely unconnected to climate change except in the twisted minds of these researchers and media outlets.

Still, linking climate change to inflation is patently idiotic. First and foremost, in the immortal words of Nobel Prize-winning economist Milton Friedman, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” As I told Issues & Insights when they reached out to me for a comment on the ludicrous attempt to link climate change to inflation, climate change doesn’t print money, nor does it create new programs or increase government spending which injects money into the economy when productivity is not increasing and thus diminishes the ability of private companies to gain access to capital for productive uses not sanctioned or subsidized by government.

Let’s quickly dispose of the claim climate change is causing worsening of various weather trends that somehow force governments to print and spend money, thus contributing to inflation. Climate at a Glance has looked at each of the weather events alarmists have claimed are becoming more frequent or severe due to climate change. Whether you pick drought, floods, heat waves, hurricanes, sea level rise, tornadoes, or wildfires, the data presented in Climate at a Glance and the statements of the U.N.’s Intergovernmental Panel on Climate Change—the supposed gold standard of climate research—provide no evidence any of these trends are worsening. Indeed, some are improving. No signal of climate change damage or climate change-induced inflation there.

Inflation has greatly affected food prices, but if anything, the claim that climate change is contributing to inflationary pressures on food prices is on even shakier ground than the belief it is causing any of the weather events mentioned above. As Climate Realism has shown in more than 200 posts, food production and yields for most crops in most countries and regions and for the world as whole have increased dramatically as the Earth has modestly warmed, in part due to the CO2 fertilization effect. Basic cereal crops, secondary crops, fruits, legumes, and vegetables have repeatedly set new records amid ongoing modest warming. If climate change is contributing to greater food production, and it is, then it can’t be causing higher food prices.

In Europe and elsewhere, policies imposed on farmers to fight climate change have led to empty store shelves, higher prices, and riots and farmer protests that have toppled governments and shifted elections. And because agricultural products are traded internationally, the effects of Europe’s and (to a lesser extent) the Biden administration’s thus far more indirect hurdles imposed on food production have rippled throughout economies around the world, jacking up food prices everywhere. Some people are going hungry and others have less money in their pockets to spend on other goods and services, including other necessities, because the need for food is fairly inelastic—everybody’s got to eat—so demand remains high while governments suppress production.

Energy prices have also risen as European governments and the Biden administration have imposed restrictions on fossil fuel development and use, along with new regulations on emissions.

As detailed in a Heartland Institute article titled “Biden Energy Policies Cost U.S. Households More Than $2,300 Since 2021,” Biden administration policies in just its first two years cost the average American household $2,300 in higher energy costs. Biden has been blocking and cancelling previously approved pipeline development; slow-walking oil and gas leasing plans, missing legal deadlines by months, issuing the lowest number of energy production leases since the 1940s, and repeatedly canceling legally required oil and gas lease sales; passing the first direct federal tax on methane emissions; and doubling rental fees on onshore leases. These and other actions have increased the costs of natural gas, oil, gasoline, diesel, and airline fuel. By June 2023, Biden’s polices had increased residential electricity prices by 17 percent, industrial electricity prices by 34 percent, home heating oil prices by 88 percent, oil prices by 61 percent, and natural gas prices by 51 percent.

Energy is critical to every good and service produced and delivered, so prices for everything else have risen in response. Fossil-fuel restrictions are one of the main ways the Biden administration has raised food prices. Fossil fuels are fundamental to every step of the food production process, from the chemicals used for fertilizers and pesticides (on which Biden placed import restrictions) to the fuel used in tractors, storage facilities, freezers, and the trucks that transport the food from field to market. Higher fuel prices mean higher food prices.

Then there is all the money the U.S. government and governments around the world injected into the economy in spending bills related to the Wuhan coronavirus in response to the lockdowns those same governments imposed. In the United States, the spending continued beyond the Covid-19 crisis, with the laughably named Inflation Reduction Act that allocated hundreds of billions of new dollars to fight climate change. The Biden administration’s multiple spending increases injected trillions of dollars into the economy at a time when fuel production was at a standstill or severely restricted by government lockdowns, which resulted also in supply-chain problems.

“Free” taxpayer money was flowing rapidly into peoples’ hands, boosting demand, while production was slow or nonexistent. These factors combined to produce the highest inflation in decades. It’s Economics 101: when demand is high but supply is low, prices rise until demand moderates and/or supply catches up.

Climate change is not causing inflation. It can’t, because inflation is a product of monetary and fiscal policy, which climate has no control over. Government climate policies and spending, by contrast, have directly produced higher prices for food and fuel, the latter having a ripple effect throughout the economy.

Sources: Issues & Insights; Issues & Insights; The Heartland Institute; Nature: Communications Earth & Environment