The opinion piece, first published in The Hindu BusinessLine, examines how climate change is emerging as a significant threat to price stability and financial resilience in India, with the RBI’s April 2024 report highlighting its potential to raise headline inflation by about 100 basis points and decrease long-term economic output by 9% by 2050 without mitigation policies. It emphasizes the need for the RBI to integrate climate variables (temperature, precipitation patterns, soil moisture, extreme weather events) into its inflation forecasting models, citing recent evidence of climate impacts such as manufacturing activity falling to a three-month low due to heatwaves. The authors recommend strengthening monitoring of climate-sensitive sectors, extending inflation projections from one year to possibly 10 years, and maintaining headline inflation targets rather than core inflation to better capture climate impacts on food production and energy prices. The piece concludes that the RBI must proactively reform its monetary tools through climate-integrated forecasting, prioritize sensitive industry monitoring, and engage with the government to effectively respond to climate change-induced inflation risks.

Web Link: https://ieefa.org/resources/rbis-options-tackling-climate-change-induced-inflation

Image Credit: ANI | HinduBusinessLine