In a weird twist, extreme heat waves in Italy actually drive inflation down instead of up.
While we typically expect climate extremes to cause scarcity and higher prices, localized Italian data shows that extreme high temperatures exert downward pressure on inflation, primarily through complex shifts in energy price dynamics. Conversely, extreme cold has a much more immediate and pronounced effect on raising prices.
Climate Extremes and Inflation: Evidence from Italian Regional Data
SSRN · 6408558
This paper empirically investigates the impact of climate extremes on inflation, focusing on Italy and providing complementary evidence for the euro area. Using Italian regional data (NUTS2), which better capture the localized nature of climate extremes, it finds that extremely high temperatures generally exert downward pressure on inflation, whereas extremely low temperatures have a pronounced positive effect, mainly driven by energy price dynamics. Extreme precipitation is associated with decr