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Climate extremes and inflation: evidence from Italian regional data

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  • Alessandro Mistretta

    (Bank of Italy)

Abstract

This paper empirically investigates the impact of climate extremes on inflation, focusing on Italy and providing complementary evidence for the euro area. Using Italian regional data (NUTS2), which better capture the localized nature of climate extremes, it finds that extremely high temperatures generally exert downward pressure on inflation, whereas extremely low temperatures have a pronounced positive effect, mainly driven by energy price dynamics. Extreme precipitation is associated with decreases in energy prices. These findings highlight the need for central banks to incorporate climate-related shocks into their inflation assessments and policy frameworks.

Suggested Citation

  • Alessandro Mistretta, 2025. "Climate extremes and inflation: evidence from Italian regional data," Questioni di Economia e Finanza (Occasional Papers) 988, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_988_25
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2025-0988/QEF_988_25.pdf
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    References listed on IDEAS

    as
    1. Francesco Corsello & Alex Tagliabracci, 2023. "Assessing the pass-through of energy prices to inflation in the euro area," Questioni di Economia e Finanza (Occasional Papers) 745, Bank of Italy, Economic Research and International Relations Area.
    2. Qi, Chaoping & Ma, Yu & Du, Meng & Ma, Xiaoxian & Xu, Yuan & Zhou, Xiangjun, 2025. "Impacts of climate change on inflation: An analysis based on long and short term effects and pass-through mechanisms," International Review of Economics & Finance, Elsevier, vol. 98(C).
    3. Alessandro Cantelmo & Nikos Fatouros & Giovanni Melina & Chris Papageorgiou, 2024. "Monetary Policy Under Natural Disaster Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1441-1497, August.
    4. Kotz, Maximilian & Kuik, Friderike & Lis, Eliza & Nickel, Christiane, 2023. "The impact of global warming on inflation: averages, seasonality and extremes," Working Paper Series 2821, European Central Bank.
    5. Casoli, Chiara & Manera, Matteo & Valenti, Daniele, 2024. "Energy shocks in the Euro area: Disentangling the pass-through from oil and gas prices to inflation," Journal of International Money and Finance, Elsevier, vol. 147(C).
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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