India Rimmer, Hannah Copeland and Boromeus Wanengkirtyo
World excessive climate occasions could really feel distant, however they depart behind a path of upper costs in our buying baskets. As outlined in previous Financial Coverage Experiences, droughts, flooding and heatwaves occurring abroad typically impression 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 setting up a brand new proxy for international climate shocks, we discover that they improve UK meals costs with a peak impression 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 Might 2025. Climate continues to matter for inflation amidst the present El Niño phenomenon.
Meals costs have been blown astray
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 on account of larger labour prices and new packaging rules, which elevated prices for UK meals producers.
However international climate shocks additionally contributed by lowering 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 economic system and financial coverage (Talbot (2026) and NGFS (2026)).
Particularly, larger meals commodity costs and with some delay UK client meals costs appear to observe El Niño-Southern Oscillation (ENSO) phases, as recommended by Chart 1. ENSO is a climate phenomenon that impacts temperature and precipitation the world over and might subsequently have a big impression 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 value inflation and UK meals and non-alcoholic beverage inflation alongside moderate-to-strong ENSO phases. Information to March 2026.
Sources: IMF Major 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 impression of worldwide climate shocks. It is a time collection 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 troublesome to measure.
To construct our proxy we use European Fee warnings about crop situations as outlined in Rembold (2018). This information set supplies ten-daily warnings of local weather anomalies for crop areas utilizing information on rainfall and vegetation anomalies. To create a month-to-month collection incorporating each constructive and adverse 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 complete pattern interval. Because of this, we don’t seize local weather developments, although this can be cheap as our pattern interval is comparatively quick. Lastly, we weight nations collectively by their share of worldwide agricultural exports.
Chart 2 exhibits the ensuing international climate shock collection alongside moderate-to-strong ENSO phases. In setting up the collection we discover that localised climate shocks in nations with excessive weights, for instance the US, Brazil, the Netherlands and China, have a big impression. Nevertheless, as one can see within the chart, there’s not such a clear-cut relationship with ENSO phases.
Chart 2: World climate shock collection
Notes: Excessive-frequency international climate shock collection alongside moderate-to-strong ENSO phases. Information to February 2026.
Sources: FAOSTAT, NOAA, Rembold (2018) and authors’ calculations.
To quantify the impression of worldwide 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 collection. 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 establish the structural shocks.
We additionally use two different proxies, oil provide shocks from Känzig (2021) and gasoline 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 major European vitality shock.
Within the spirit of De Winne and Peersman (2021), the goal variable for the climate shock collection, used to establish the structural shocks and decide instrument relevance, is a trade-weighted common of the IMF’s commodity value indices for 4 staple meals commodities: wheat, rice, corn and soybeans. These teams make up a major share of worldwide 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 gasoline costs, the sterling efficient trade 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 information in log-levels, over a pattern interval of January 2006 to February 2026.
Outcomes counsel we are able to 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 by means of 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 impression
Notes: Impulse responses to the recognized international climate shocks, normalised to extend grain commodity costs by 1% on impression. 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 impression of worldwide climate shocks on client costs, the outcomes are broadly according to expectations. World climate shocks impression 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. Increased vitality costs could replicate climate shocks rising demand for oil and gasoline through disruptions to biofuel manufacturing, for instance. Comparable research additionally discover reasonable rises in vitality costs in response to reap shocks (Peersman (2022)). The impression to UK vitality inflation in our mannequin is non-trivial, 0.4 share factors at peak.
Chart 4 presents the estimated historic contribution of worldwide 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 Might 2025, when meals inflation was 4.4%. This light by September and extra lately has been pushing down on meals inflation within the UK. Though our proxy doesn’t completely seize ENSO occasions, durations of moderate-to-strong ENSO typically 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 worldwide climate shocks to UK meals inflation
Notes: Historic contribution of worldwide climate shocks to UK meals and non-alcoholic beverage inflation, alongside moderate-to-strong ENSO phases. Information to February 2026.
Sources: Financial institution of England Financial Coverage Experiences, NOAA, ONS and authors’ calculations.
Conclusion
By setting up a brand new high-frequency collection of climate shocks, we have now 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 counsel that international climate disruption can have a major, lagged, and protracted impression on UK client meals costs.
As our proxy is constructed utilizing information accessible in close to real-time and climate shocks feed by means of to UK client costs with a lag, with additional refinement this mannequin has the potential to estimate the impression 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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