Inflation - 312

 Inflation is getting worse in the age of rapid human-caused climate change.

What causes inflation? Supply and demand govern economics. Here are the basics: If there is not enough bread and people are hungry, the price of bread goes up. If people have plenty of bread or decide they would rather eat turnips, the price goes down.

During Covid, essential quarantines were imposed here and in China. The economic worry then  was that consumers would not have money to spend. This would have collapsed the economy into a depression. The Federal Government and the Federal Reserve jumped in and injected money. Adding money to the economic system is inflationary, but while inflation is ugly,  we must be thankful we did not slide into recession.

Also, during COVID-19, the Chinese manufacturing base and the supply chain from China to our retail stores were ravaged. Before this, we had a steady stream of cheap Chinese goods, so the marketplace jacked the prices up when these became scarce. This was supply shock inflation, and we have yet to straighten the supply chain out fully.

There is also cost-push inflation, where the costs of making and shipping goods increase, pushing prices.

Another example of cost-push inflation is the attack by the Houthi Rebels on ships traversing the Red Sea to the Suez Canal. These attacks have forced ships to divert around Africa's Cape of Good Horn, increasing shipping costs.

Also, tax cuts that require the government to borrow and pump in foreign money have an inflationary impact. The Trump tax cut for the rich did this, creating more debt.

We have been subject to many inflationary pressures, but the big one, climate change,  is just getting started.

Here are some of the ways climate change is already an inflation power.

The Federal and State Governments respond to disasters by funding rebuilding. Wildfires, floods, and storm damage are met with disaster declarations. The money to aid communities comes from other programs, or we borrow it. Borrowing, as I mentioned, is inflationary.

In the private insurance market, premiums must be increased to cover policyholders of home and car owners affected by the worsening weather.

I used to get my insurance from a military provider. Unfortunately, we have many military bases along the Gulf Coast and California, where extreme weather is now common.

I just switched my coverage to an insurance agency that only provides coverage in Minnesota, Wisconsin, and Michigan. Since we have less exposure to storms on climate change steroids, they offer lower rates.

If your insurance rates are going up, you should take solace in the fact you can find insurance.

Some insurance companies are pulling out of storm-prone states like Texas, Florida, and California.

One troubling government practice is to backstop homeowners and businesses who rebuild in flood-prone areas. It makes no sense, especially when we know extreme weather will worsen.

 

Meanwhile, the already strapped Federal Emergency Management Agency faces a budget crisis, and sales of catastrophe bonds are at an all-time high.

 

The climate also impacts ocean shipping. Like the Suez Canal, the Panama Canal is a shipping chokepoint vulnerable to conflicts or, in the case of the Panama Canal, climate variations. Due to drought, the Panama Canal has suffered from a lack of water to run the locks, causing delays for ships and adding inflationary pressure.

Agriculture and forestry are greatly affected by climate change. When it is hot, crops need more water, which raises costs for the farmer, who must pump more water or buy expensive but efficient watering systems.

If a forest burns part of the wood supply is destroyed. When supply goes down, prices go up.

Some places like Southern Florida,  Iowa, and Minnesota are experiencing flooding.

All plants, domesticated or wild, have limits. They cannot tolerate too much water or too little; too much heat or too little. When the climate gets too wet, plants drown.

A clear example is when Florida was hit with torrential rain, and juice and frozen drinks prices rose 19.5%.

Chocolate prices shot up due to climate damage of African cocoa beans.

And here is a twister for you. Many of the immigrants at our southern border are climate change victims. They raise the cost of border enforcement.

But here is a twist: The immigrants who do make it in are a great value to our labor-strapped economy!

Since we live in a culture that monetizes everything, we pay little attention to anything that does not directly impact our wallets. Is it possible inflation will wake us up to the toll of climate change first? Scientists and economists warned us that we can ignore climate science today, but they warned us that we will learn quickly when we get insurance premiums.

I wonder if the scientists and economists were correct. We will continue to ignore the clear links and blame inflation on everything and everybody else.

Much of this article comes from Wired Magazine, “Everything’s About to Get a Hell of a Lot More Expensive Due to Climate Change”