For some time I have been asking myself whether inflation is becoming entrenched because of climate change. So I did some research.
One website talked about two new words -sogflation and heatflation. I think sogflation will apply to crops from our recent floods in the north of the south island. Heatflation certainly will apply to crops like soy beans coming from places under the USA’s heat dome and to crops like olives from Portugal and Spain in the summer of 2025, where temperatures are as high as 46 degrees Celsius.
Inflation, particularly in food prices, is increasingly entrenched due to the ongoing impacts of climate change on global agriculture. As extreme weather events—droughts, floods, and heatwaves—become more frequent and severe, crop failures are rising, directly reducing food supply and pushing prices higher.
Recent years offer clear examples. In 2023, drought in West Africa slashed cocoa yields, causing global prices to double within a year. Similarly, a prolonged drought in Spain devastated olive oil production, sending prices to all-time highs. In the US and Argentina, soybean harvests plummeted due to dry spells, resulting in sharp price increases. Meanwhile, excessive rain in northern Europe in 2023 left potato crops rotting in fields, driving prices up 158% compared to the previous year.
These price spikes are not isolated or temporary. The underlying climate pressures—rising temperatures, erratic rainfall, and more frequent crop diseases—persist year after year, making it less likely that prices will return to pre-failure levels. Each new failure compounds the last, as depleted stocks and reduced resilience in food systems mean that even a single bad harvest can trigger lasting inflationary effects.
As climate change continues to disrupt agriculture worldwide, the resulting inflation is unlikely to subside. Instead, higher food prices are set to become the new normal, embedding inflation more deeply into the global economy.
There is one problem. News articles talking about inflation rarely mention the impact of climate change or use the words crop failure. RNZ did this two months after Cyclone Gabrielle in New Zealand. The media has a lot to answer for. The exceptions are sites like this.
That is why the Reserve Bank of NZ and central banks all over the world will struggle.