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Climate extremes and inflation: evidence from Italian regional data

Author

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