The Effect of Climatic Variability on Consumer Prices: Evidence from El Niño–Southern Oscillation Indices

This study aimed to identify the correlation between global climate phenomena, such as the ENSO, and South Korea’s Consumer Price Index (CPI) for a climate-sustainable economy. South Korea’s CPI has shown a linear upward trend, prompting a trend analysis and the subsequent removal of the linear trend for further examination. The correlation analysis identified statistically significant cases under the study’s criteria, with the Southern Oscillation Index (SOI) displaying the highest contribution and sensitivity. When comparing general correlations, the strongest relationship was observed with a 27-month lag. The Granger Causality Test, however, revealed causality with a 9-month lag between the CPI and El Niño–Southern Oscillation (ENSO) indices. This indicates the feasibility of separate analyses for long-term (27 months) and short-term (9 months) impacts. The correlation analysis confirmed that the ENSO contributes to explainable variations in the CPI, suggesting that CPI fluctuations could be predicted based on ENSO indices. Utilizing ARIMA models, the study compared predictions using only the CPI’s time series against an ARIMAX model that incorporated SOI and MEI as exogenous variables with a 9-month lag. Using the ARIMA model, this study compared predictions based solely on the time series of CPI with the ARIMAX model, which incorporated SOI and MEI as exogenous variables with a 9-month lag. Furthermore, to investigate nonlinear teleconnections, the neural network model LSTM was applied for comparison. The analysis results confirmed that the model reflecting nonlinear teleconnections provided more accurate predictions. These findings demonstrate that global climate phenomena can significantly influence South Korea’s CPI and provide experimental evidence supporting the existence of nonlinear teleconnections. This study highlights the meaningful correlations between climate indices and CPI, suggesting that climate variability affects not only weather conditions but also economic factors in a country.