Heat and drought push up food, energy and transport prices, SARB study finds

Extreme heat and drought can lift food, energy and transport prices without producing the same broad inflation pattern as a surge in consumer demand, new South African Reserve Bank research has found.

The working paper by Serena Merrino and Xolani Sibande examined monthly consumer-price data across 65 countries from 2000 to 2024. It also included a South Africa-specific analysis.

The researchers found that weather shocks tended to affect prices first in sectors closest to the disruption. Food, energy and transport showed the clearest increases, while the effect on core inflation was limited and often statistically insignificant.

Compound episodes involving both high temperatures and drought produced the largest price effects in the study.

Why the type of inflation matters

The findings distinguish climate-linked price pressure from demand-driven inflation. A drought can reduce agricultural output, disrupt transport or raise energy costs even when household demand has not strengthened.

That difference matters for monetary policy because higher interest rates cannot reverse crop damage or restore disrupted supply. The paper says moderate and temporary weather shocks in its sample did not justify automatic policy tightening.

It also found that countries operating under inflation-targeting regimes generally recorded smaller price responses. The authors linked this to better-anchored expectations rather than unusually aggressive interest-rate action.

The study does not argue that climate shocks are harmless. Repeated increases in headline inflation can still affect expectations, particularly when households face recurring food and fuel price pressure.

South African households exposed through essentials

Food and transport carry substantial weight in household budgets, making sector-specific shocks visible even when they do not spread widely through the inflation basket.

South Africa's inflation-targeting framework requires the Reserve Bank to assess whether a price shock is likely to fade or become embedded in wages and other prices. The paper adds cross-country evidence to that assessment as extreme weather becomes more frequent.

The publication is a working paper and represents research findings rather than a new Monetary Policy Committee decision. Interest-rate decisions continue to be announced separately after the committee's scheduled meetings.