Temperature, precipitation and food price inflation: Evidence from a panel of countries

This study addresses a significant gap in the existing literature by examining the association between weather variables, i.e., temperature and precipitation, and food price inflation at monthly frequency. Using a comprehensive panel dataset that spans 23 years of data for 186 countries, we explore this relationship in depth. Furthermore, we employ panel quantile regression techniques to investigate how weather-related variables influence food price inflation across different quantiles of inflation. Our findings reveal three key results. First, we establish that weather variables play a crucial role in explaining inflation, with temperature generally having a negative coefficient with inflation contemporaneously. In contrast, precipitation appears to have a positive coefficient, and the strength of these associations varies across different inflation quantiles. In addition, although the contemporaneous effect is negative, the cumulative inflationary effect of 1◦C temperature increase reaches up to 0.6 percentage points. Subsequently, our results demonstrate sensitivity to the method of clustering the panel of countries, indicating the importance of methodological considerations in such analyses.