India Rimmer, Hannah Copeland and Boromeus Wanengkirtyo
International excessive climate occasions might really feel far-off, however they depart behind a path of upper costs in our buying baskets. As outlined in previous Financial Coverage Stories, droughts, flooding and heatwaves occurring abroad typically affect UK meals inflation, which averaged 4.2% in 2025. However how a lot of the rise in meals inflation final 12 months can we blame on the climate? By developing a brand new proxy for international climate shocks, we discover that they improve UK meals costs with a peak affect after one 12 months. Within the newest interval, our mannequin means that climate shocks contributed 0.8 share factors to meals inflation at peak in Could 2025. Climate continues to matter for inflation amidst the present El Niño phenomenon.
Meals costs have been blown off beam
As set out within the August 2025 Financial Coverage Report, final 12 months UK meals and non-alcoholic beverage (hereafter ‘meals’) inflation rose above its pre-Covid common of round 1.5%, peaking at 5.1% in August. This was partly attributable to larger labour prices and new packaging laws, which elevated prices for UK meals producers.
However international climate shocks additionally contributed by decreasing crop yields and elevating meals manufacturing prices (August 2025 Financial Coverage Report). Droughts in Brazil elevated espresso costs whereas heavy rainfall and plant illness in West Africa raised the value of cocoa. Nearer to residence, beef and dairy costs rose after dry climate within the UK and elsewhere elevated livestock feed prices. This isn’t a brand new drawback, nor one that may go away. Local weather change is rising the frequency of maximum climate occasions throughout the globe, with penalties for the financial system and financial coverage (Talbot (2026) and NGFS (2026)).
Particularly, larger meals commodity costs and with some delay UK shopper meals costs appear to observe El Niño-Southern Oscillation (ENSO) phases, as steered by Chart 1. ENSO is a climate phenomenon that impacts temperature and precipitation internationally and may due to this fact have a big affect on international climate situations. It has two reverse phases, El Niño (warmer-than-average) and La Niña (cooler-than-average).
Chart 1: Meals commodity costs and UK meals inflation
Notes: Worldwide Financial Fund (IMF) meals and beverage commodity worth inflation and UK meals and non-alcoholic beverage inflation alongside moderate-to-strong ENSO phases. Knowledge to March 2026.
Sources: IMF Main Commodity Costs, Nationwide Oceanic and Atmospheric Administration (NOAA) and Workplace for Nationwide Statistics (ONS).
A mannequin to chart the storm
We calculate a brand new high-frequency proxy to estimate the financial affect of world climate shocks. This can be a time sequence of unanticipated climate occasions, accounting for seasonality and the significance of every nation for international agricultural exports. Proxies present details about shocks which might be in any other case tough to measure.
To construct our proxy we use European Fee warnings about crop situations as outlined in Rembold (2018). This knowledge set offers ten-daily warnings of local weather anomalies for crop areas utilizing knowledge on rainfall and vegetation anomalies. To create a month-to-month sequence incorporating each optimistic and detrimental climate shocks, we calculate the deviation within the variety of anomalies from the pattern imply for every month and nation. We calculate the imply over your entire pattern interval. Because of this, we don’t seize local weather traits, although this can be cheap as our pattern interval is comparatively brief. Lastly, we weight nations collectively by their share of world agricultural exports.
Chart 2 exhibits the ensuing international climate shock sequence alongside moderate-to-strong ENSO phases. In developing the sequence we discover that localised climate shocks in nations with excessive weights, for instance the US, Brazil, the Netherlands and China, have a big affect. Nonetheless, as one can see within the chart, there may be not such a clear-cut relationship with ENSO phases.
Chart 2: International climate shock sequence
Notes: Excessive-frequency international climate shock sequence alongside moderate-to-strong ENSO phases. Knowledge to February 2026.
Sources: FAOSTAT, NOAA, Rembold (2018) and authors’ calculations.
To quantify the affect of world excessive climate occasions on UK meals inflation, we estimate a proxy vector autoregression mannequin utilizing Bayesian strategies (BVAR), partially recognized by our new climate shocks sequence. The mannequin builds on the methodology described in Arias et al (2021) and Copeland et al (2025), utilizing a mixture of proxies with zero and signal restrictions to determine the structural shocks.
We additionally use two different proxies, oil provide shocks from Känzig (2021) and fuel provide shocks from Alessandri and Gazzani (2025). These assist the mannequin to distinguish between climate and vitality provide shocks, which have typically occurred independently however concurrently, for instance in 2022–23 when international antagonistic climate situations coincided with a big European vitality shock.
Within the spirit of De Winne and Peersman (2021), the goal variable for the climate shock sequence, used to determine the structural shocks and decide instrument relevance, is a trade-weighted common of the IMF’s commodity worth indices for 4 staple meals commodities: wheat, rice, corn and soybeans. These teams make up a big share of world meals manufacturing as measured by caloric content material and they’re strongly affected by climate situations (De Winne and Peersman (2021)). We additionally use actual oil and fuel costs, the sterling efficient alternate charge index, a Covid-adjusted measure of UK actual GDP, and UK meals, vitality and headline CPI inflation. The mannequin is estimated on month-to-month knowledge in log-levels, over a pattern interval of January 2006 to February 2026.
Outcomes recommend we will blame (a few of) it on the climate
Chart 3 exhibits the modelled impulse responses of UK meals and headline CPI inflation to a weather-driven 1% rise in international meals commodity costs. Meals inflation rises by round 0.15 share factors at peak after 12 months, whereas headline inflation will increase by 0.09 share factors, reflecting larger meals, vitality and core inflation. The rise in meals inflation comes via with a lag, however is sort of persistent, lasting for round 2½ years.
Chart 3: Impulse response capabilities of UK meals and headline CPI inflation to international climate shocks scaled to extend grain commodity costs by 1% on affect
Notes: Impulse responses to the recognized international climate shocks, normalised to extend grain commodity costs by 1% on affect. Estimation pattern: January 2006 to February 2026. The stable line represents the median draw. The shaded areas are the 80% credible intervals.
Supply: Authors’ calculations.
Whereas our estimates are topic to uncertainty and symbolize just one method to quantifying the affect of world climate shocks on shopper costs, the outcomes are broadly in line with expectations. International climate shocks affect UK inflation reasonably and with a lag, unsurprising given the size of harvest cycles. Additionally they seem to have broad-based inflation impacts (NGFS (2026)) and appear to transmit to meals and headline inflation not directly, together with through elevated vitality demand and costs. Larger vitality costs might mirror climate shocks rising demand for oil and fuel through disruptions to biofuel manufacturing, for instance. Comparable research additionally discover reasonable rises in vitality costs in response to reap shocks (Peersman (2022)). The affect to UK vitality inflation in our mannequin is non-trivial, 0.4 share factors at peak.
Chart 4 presents the estimated historic contribution of world climate shocks to UK meals inflation alongside moderate-to-strong ENSO phases. Within the newest interval, the mannequin means that international climate shocks made a peak contribution of 0.8 share factors in Could 2025, when meals inflation was 4.4%. This pale by September and extra lately has been pushing down on meals inflation within the UK. Though our proxy doesn’t completely seize ENSO occasions, intervals of moderate-to-strong ENSO usually coincide with larger UK meals inflation, with various lags and magnitudes. For instance, the mannequin estimates that climate shocks contributed 1.7 share factors to UK meals inflation at their peak in 2017, following the sturdy 2015–16 El Niño.
Chart 4: Historic decomposition of previous contribution of world climate shocks to UK meals inflation
Notes: Historic contribution of world climate shocks to UK meals and non-alcoholic beverage inflation, alongside moderate-to-strong ENSO phases. Knowledge to February 2026.
Sources: Financial institution of England Financial Coverage Stories, NOAA, ONS and authors’ calculations.
Conclusion
By developing a brand new high-frequency sequence of climate shocks, we now have estimated that excessive international climate occasions have performed a non-trivial position in UK meals and headline inflation over the previous twenty years. Our outcomes recommend that international climate disruption can have a big, lagged, and protracted affect on UK shopper meals costs.
As our proxy is constructed utilizing knowledge accessible in close to real-time and climate shocks feed via to UK shopper costs with a lag, with additional refinement this mannequin has the potential to estimate the affect of present international climate shocks over the financial policy-relevant horizon.
India Rimmer works within the Financial institution’s Worldwide Surveillance Division, and Hannah Copeland and Boromeus Wanengkirtyo work within the Financial institution’s Structural Economics Division.
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