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Minimize damages from extreme weather

Published: 20 Aug. 2024, 20:06

Just when the central bank thought the years-long battle with inflation might be wrapping up, it confronts a new headwind — extreme weather. The scorching heat waves, droughts and floods are increasing food prices, reflecting climate inflation. Apples have become pricey, becoming like precious stones like diamonds. Vegetables also joined the gem list due to the lengthy heat wave. Eating kimchi became a luxury due to the spike in the prices of hot peppers and cabbage. According to the Ministry of Interior and Safety, as many as 900,000 livestock animals have died in the sizzling heat since June. Fish farms reported over 150,000 fish deaths. This all translates into soaring grocery prices.

According to a Bank of Korea (BOK) study of correlation between the climate risk index and industrial output and price data, about 10 percent in the rise of inflation since last year is due to high temperatures and climate change. The shock from extreme weather bumped up the headline consumer price index by 0.03 percentage points three months later. When excluding the substitute effect through imports, climate risk caused a 0.08-percent rise in prices. Inflation eats away wealth value and dampens consumption and consequently the economy.

Climate hazards also hurt industrial outputs. Extreme heat, droughts and floods continue disrupting productivity. The deterioration in workers’ performance, poor crops and natural disasters all led to a decline in outputs. The BOK study found that extreme climate lowered the industrial output growth rate by 0.6 percentage points after a 12-month lag. Unseasonal climate conditions from 2001 to 2012 cut outputs in agriculture, forestry and fisheries by up to 1.1 percentage points and construction by 0.4 percentage points. Since industrial output affects economic growth, the economic toll from climate risks must not be taken lightly.

Climate change causes a spike in commodity prices led by fresh food, and further fuels inflation. The cost to minimize the damages from extreme weather and deal with the aftermath also can be astronomical. According to Germany-based Potsdam Institute for Climate Impact Research, the annual toll globally from climate change was estimated at $38 trillion.

The government must come up with phased comprehensive action plans to mitigate the negative effects from climate change on the economy. It must be responsive to hasten substitutes through imports to prevent a spike in fresh food prices and correct the retail structure. Short- and long-term plans must be outlined to stabilize energy supplies and enforce damage control against extreme weather. We must aggressively approach the global campaign aiming to stop and address unprecedented challenges from climate change.