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Decomposing the Inflation Response to Weather-Related Disasters

Author

Listed:
  • Erwan Gautier
  • Christoph Grosse Steffen
  • Magali Marx
  • Paul Vertier
Abstract
This paper provides empirical evidence on the compositional effect of weather-related disasters on consumer prices. We combine data on monthly granular inflation for 12 CPI product categories with data on extreme weather events for four French overseas territories sporadically hit by large weather-related disasters. We find that disasters lead to a maximum rise in consumer prices of 0.5 percent with substantial heterogeneity in the price response. An immediate strong surge in the prices of food, and notably of fresh products, is partially offset by a decline in the prices of manufactured products and services. The effects of weather-related disasters dissipate after four months and differ along the income distribution, notably raising inflation for low-income households by more. Price controls dampen the price response on impact, but lead to similar adjustments in the price level after six months.

Suggested Citation

  • Erwan Gautier & Christoph Grosse Steffen & Magali Marx & Paul Vertier, 2023. "Decomposing the Inflation Response to Weather-Related Disasters," Working papers 935, Banque de France.
    • Handle: RePEc:bfr:banfra:935
    as

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    File URL: https://www.banque-france.fr/system/files/2023-12/WP935_0.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Natural Disasters; Extreme Weather; Inflation; Disaggregate Inflation; Inequality; Price Gouging;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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