A1159
Title: Saving for sunny days: The impact of climate change on consumer prices in the euro area
Authors: Mirjam Salish - Austrian National Bank (Austria)
Nazarii Salish - University Carlos III de Madrid (Spain) [presenting]
Abstract: Climate change affects the prices of goods and services differently in various countries or regions. Simply looking at aggregate measures or summary statistics, such as the impact of average temperature changes on headline inflation in the HICP, conceals substantial heterogeneity across economic sectors. Additionally, the effect of weather shocks or anomalies on consumer prices depends on their magnitude, direction and location. Using novel techniques from functional data analysis, a methodology is developed to identify and estimate patterns and relationships between climate variables and price indices. This approach enables us to treat climate variables as a time series of surfaces, allowing for the simultaneous consideration of spatial and temporal dependencies between this data set and price indices across different countries. It is demonstrated that relying solely on country averages cannot adequately capture and explain the influence of weather on consumer prices in the euro area. Consequently, it is concluded that the valuable insights provided by rich and complex surface data can shed light on the role of weather and climate variables in ensuring price stability.
