Climate change already increasing your bills

APLAN AND RACHEL S IEGEL The Washington Post

No one in r/Costco - the Reddit group dedicated to the beloved bulk store - could get over it. The hefty, store-brand olive oil bottles they had been purchasing for years, the ones they all agreed were the best and cheapest around, suddenly cost twice what they used to.

"Olive oil insanity!" one commenter wrote in the fall. "Why is olive oil so expensive?" another demanded in March.

Popping prices for a pantry stable might seem like just another example of hard-to-digest inflation. But economists say there could be another culprit behind certain price spikes, one that will only become more influential in the coming years: climate change. That's especially the case when every month so far this year has been the hottest ever. June - marked by a sweltering heat wave for much of the country- seems likely to set another record.

In March, a study from scientists at the European Central Bank and the Potsdam Institute for Climate Impact Research found that rising temperatures could add as much as 1.2 percentage points to annual global inflation by 2035. The effects are taking shape already: Drought in Europe is devastating olive harvests. Heavy rains and extreme heat in West Africa are causing cocoa plants to rot. Wildfires, floods and more frequent weather disasters are pushing insurance costs up, too.

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As human-created greenhouse gas emissions wreak planetary chaos, researchers forecast even more economic effects, driving temporary price increases - and raising risks for longer-term inflation, especially as spikes become more frequent.

Soaring temperatures will create unbearable conditions for crops and workers. Severe storms and prolonged droughts will batter supply chains and disrupt the flow of trade. Escalating risk and uncertainty will make it more difficult to insure everything from a home to a new business venture.

"These are really big effects … and they are going to get worse," said Max Kotz, a climate economist at the Potsdam Institute and lead author of the March study. "The clearest way we can limit that is just trying to limit climate change itself."

For now, experts say, it's difficult to pinpoint climate change's effect on prices beyond a few items. Too many other factors are also pushing costs up right now, including wars and supply chains.

But there's little doubt among economists that a hotter world will also be more expensive.

IN THE GROCERY AISLE

This year, the global price of olive oil hit an all-time high, according to data from the International Monetary Fund.

Experts say that benchmark is inextricably linked to another unwelcome superlative: 2023 was Europe's second- hottest year on record.

In early 2023, warm winter conditions interfered with trees' ability to set fruit. When summer brought temperatures of 110 degrees Fahrenheit, the few olives that grew dropped off the vine before ripening. Scorching air sapped moisture from vegetation and soils, plunging much of the continent into drought and causing plants to wither and die.

Such high temperatures - which in some cases would have been "virtually impossible" without human-caused climate change, studies show - helped cut the region's olive oil production to almost half of typical levels, according to the U.S. Department of Agriculture. Because the European Union produces more than 60 percent of the world's olive oil, that shortage made itself felt at grocery stores around the planet - and among Costco fans on Reddit.

Of all the goods that could be affected by climate-driven price spikes, food is among the most vulnerable, Kotz said. Plants lose more water through their leaves, stop forming flowers and fruit, and eventually are unable to perform photosynthesis. Crops, livestock and fisheries are keenly sensitive to changes in their environments. Sea creatures have been known to cook to death in heat waves.

Often, producers can work around weather-induced price increases, minimizing the effect for consumers. But those adaptation strategies will become less effective as the consequences of climate change become more frequent and severe, said agricultural economist Jerry Nelson, a professor emeritus at the University of Illinois.

He pointed to cocoa - which also hit record-high prices this year - as a crop that could be highly vulnerable to future temperature rise. Most cocoa plants are genetically very similar, which means they are less likely to exhibit mutations that might help them cope with changing environmental conditions. High temperatures and extreme humidity in West Africa are also making it dangerous for farmers to work.

The Intergovernmental Panel on Climate Change - a U.N. coalition of the world's top climate scientists - projects that disasters will increasingly strike multiple agricultural regions at the same time, creating worldwide shortages. One study found that the risk of simultaneous crop failures in major corn-growing regions could increase from a 6 percent chance per year in recent decades to 40 percent if the world warms to 1.5 degrees Celsius (2.7 degrees Fahrenheit) above preindustrial temperatures - a threshold the planet is likely to exceed within the next decade.

Still, it's hard to predict the precise economic consequences, Nelson said, because food prices are affected by factors other than supply.

"We can model the physiology of crops in changing climate regimes around the world," he said. But "population, income, cultural preferences … there are all these demand changes also going on, which are really not in any of the models."

But studying the behavior of food prices during extreme events helps researchers begin to tease out the link between climate change and grocery bills. For their study, Kotz and his colleagues plotted changes in consumer price indexes in 121 countries against monthly temperature data for the past three decades. After adjusting for other factors - global recessions, conflicts within countries- they found that for every 1 degree Celsius (1.8 degrees Fahrenheit) increase in temperatures of a given month, food price inflation would increase about 0.2 percent over the course of the following year.

By 2035, the study found, climate change could boost annual food price inflation by as much as 3.2 percent, a figure that exceeds the 2 percent overall inflation target set by many central banks, including the U.S. Federal Reserve, where officials are still struggling to control prices after two years of elevated interest rates.

"From the perspective of a central banker, that's a really large pressure," Kotz said.

THE COST OF STAYING INSURED

"California New Business Update" flashed in red at the top of State Farm General Insurance Company's press release last year: The insurance giant would stop accepting new homeowner insurance applications in the Golden State, citing "rapidly growing catastrophe exposure" as a top reason alongside high construction costs and "a challenging reinsurance market."

"We take seriously our responsibility to manage risk," the company wrote, and gave a nod to the state's efforts to mitigate wildfire losses. "It's necessary to take these actions now to improve the company's financial strength."

For many, California is a cautionary tale as weather disasters nationwide become more intense, more frequent and more expensive. Spring 2023, for example, was the worst second quarter for losses on homeowners insurance since 2011, due in large part to storms, according to Tim Zawacki, insurance sector strategist at S&P Global Market Intelligence. Catastrophe claims were also particularly high in May after a relatively benign first four months of the year.

"You wouldn't expect elevated catastrophe losses each year," Zawacki said. "But over any given five- or ten-year period, you would expect bad quarters or years to occur more frequently than they would have in the past. That's something companies are constantly adjusting for in their rate-setting processes."

Exposure to climate hazards is a strong predictor of how much auto insurance will cost, said Shannon Martin, an analyst at the personal finance site Bankrate. com who previously worked as an insurance agent for 16 years. Living in a place prone to hurricanes, wildfires or floods raises the risk of your car being damaged or destroyed in a disaster. It also increases the chance of accidents or roads deteriorating faster.

Ultimately, the biggest drivers of insurance price spikes are the events that companies do not predict, Martin said. When unexpectedly large numbers of people file claims in the wake of a disaster- which is happening more often as climate change scrambles weather patterns and fuels new extremes - insurers will raise rates to recoup those losses.

"Since there's no real end in sight to what extreme weather is going to look like, there's no prediction of when [increasing insurance rates] will slow down," Martin said.

CONSEQUENCES FOR GLOBAL TRADE

A crucial part of the world's vast trade system relies on a smooth route through the Panama Canal. A streamlined system of locks and elevators keeps the waterway moving, and with it, cargo ships full of cars, grains, coal and more. Normally, about 1,000 ships pass through each month toting over 40 million tons of goods, or 5 percent of global maritime trade volumes, according to the IMF.

But the 50-mile strip has faced the worst drought since completion 110 years ago. Low water levels at Gatún Lake, which makes passage through the canal possible, prompted authorities to significantly restrict the number of ships starting last fall.

Typically, around 35 or 40 ships might pass through the canal each day. But the first few months of 2024 saw that number drop to the high teens or low 20s. Daily passage has recovered to roughly 30 ships.

Those figures have big implications for the volume of goods moving through the canal. Last summer, roughly 1.4 million metric tons passed through each day. That number steadily fell by early 2024 to below 1 million, although it has mostly recovered since.

Supply chains are complicated, so it's near impossible to tease out the implications of reduced canal traffic on prices. Even climate change's fingerprints are hard to pinpoint: A recent analysis from researchers in Panama and Europe found that high demand from expanding cities and the drying effects of a recent El Niño weather pattern were likely bigger drivers.

But Ayman Omar, a professor at American University, said the situation in Panama is emblematic of the kinds of crises that will increasingly hit supply chains as the planet warms and disasters intensify. Any event - hurricane, flood, heat - might have only a marginal effect on the cost of a car hauled on a containership. But multiple events happen at the same time, "we are not set up right now to be able to take all of those hits," Omar said.

The PortWatch tracker came to be because climate shocks are only becoming more frequent, said Michele Ruta, an economist and trade expert at the IMF. He pointed to a seminal 2010 study tracking the effects of delay times on trade: Researchers found that every day of delay cut trade by more than 1 percent.

"Everything adds on - the implications on the macro side, inflation," Ruta said.

In Panama, some shippers have paid multimillion-dollar fees for dwindling numbers of transit slots through the canal. Others have opted for a much longer voyage around South America - which also raises costs.

"We're going to see this happening from many climate- based issues, whether it's heat, whether it's floods," Omar said. "Even if it's not impacting your components and production, it's impacting your transportation and distribution."

Sooner or later, he added, "the availability goes down and the cost goes up. … Long term, this is the reality."

Flooding in Montpelier on July 11, 2023. VERMONT AGENCY OF AGRICULTURE, FOOD AND MARKETS VIA AP