Climate Anomalies and Inflationary Pressures: Evidence from Turkiye

This study examines the impact of climate anomalies on inflation and its subcomponents in Turkiye. Using a dataset spanning January 2003 to February 2024, we employ local projections methods to examine the short- and medium-term impacts of various climate anomalies on inflation indicators, such as headline CPI, food CPI, unprocessed food prices, rent, and producer prices. Our findings reveal that climate shocks significantly influence headline inflation, food prices, particularly unprocessed food prices, and producer prices in the short term, while also affecting rent prices. However, these effects often reverse or diminish in the medium term. We also uncover distinct responses to cold winters versus hot summers, highlighting the asymmetric impact of temperature anomalies. Cold winters tend to create inflationary pressures, particularly on food and producer prices, while hot summers can induce deflationary effects. Additionally, we observe that the impact of wind anomalies on prices is muted, while precipitation shocks primarily affect unprocessed food prices. These results underscore the complex and multifaceted relationship between climate change and inflation, emphasizing the need for a nuanced understanding of these dynamics.