The effect of climate shocks on food price inflation, India

Climate shocks are reshaping food price dynamics in India, with implications for macroeconomic stability and stabilization policy. This study estimates the dynamic effects of droughts, extreme temperatures, floods, and storms on food inflation using annual data for 1970–2024 and the local projections framework (horizons k = 0…5). Climate shocks are measured both as (i) binary event indicators and (ii) population-adjusted intensity (deaths per 100,000), winsorized and standardized. Estimation uses OLS with HAC/Newey–West standard errors and controls for inflation persistence, lagged shocks, output gap, monetary conditions, and external-sector variables. Results show strong heterogeneity across shock types. In intensity specifications, drought intensity raises cumulative food inflation in the medium run, becoming significantly positive by k = 3 (β = 0.5245***) and peaking at k = 4 (β = 1.2154***), with a still-positive effect at k = 5 (β = 0.4626***). Flood intensity produces short-run disinflation (k = 1: β = −1.5215**) but turns positive by k = 5 (β = 1.1597*), consistent with stabilization policy followed by delayed catch-up. Storm intensity shows short-run disinflation (k = 1: β = −1.1304**; k = 2: β = −1.2764*) while extreme temperature intensity is negative and significant at k = 2 (β = −0.9971**). State-dependent estimates indicate materially different transmission in slack conditions, reinforcing the role of macro context in climate–price pass-through. Policy implications emphasize drought-resilience investments (irrigation, climate-resilient seeds, buffer stocks), rapid post-flood logistics restoration, and explicit integration of climate risk into inflation forecasting and food-market stabilization. • Drought intensity increases food inflation in the medium run, peaking around year 4. • Flood intensity reduces food inflation in the short run but can rebound in later years. • Storm intensity effects are heterogeneous but show short-run disinflation on average. • Business-cycle conditions materially shape climate-to-inflation transmission.