GRACELIN BASKARAN: Steps to curb an inflation-induced downward spiral
The financial sector can protect itself by cutting exposure to climatic shocks and invest in sustainable projects
My previous biweekly column explored why climate change will lead to an inevitable long-term increase in inflation, given its effect on the price of key goods in the consumer price index basket. But this inflation could do further harm by triggering a negative macro-financial loop that will affect households, firms and national economies.
Here’s how it goes: high levels of inflation force central banks to implement contractionary monetary policies, which leads to a tightening of financial conditions and a slowing of credit extension. We’ve seen this already. The difference between Covid-19 recovery and climate change is that the latter is here to stay and neither advanced nor emerging economies are immune to it...
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