When weather meets prices: climate anomalies and inflation dynamics in Türkiye

This paper examines how climate anomalies influence inflation and its main components in Türkiye. Using monthly data from January 2003 to February 2024, we employ local projection methods to estimate the short- and medium-term effects of various climate anomalies across a broad set of inflation indicators. The results show that climate anomalies have a significant short-term impact on headline inflation, food prices – especially unprocessed food – producer prices, and rent prices. These effects generally diminish over time and may even reverse in the medium term. Analyzing asymmetric temperature responses, we find that unusually cold winters drive prices higher, most notably for food and producer prices, while unusually hot summers can have a disinflationary effect. Wind anomalies have minimal impact on overall price movements, whereas precipitation anomalies mainly affect unprocessed food prices. The findings reveal a complex, multidimensional relationship between climate conditions and inflation, underscoring the need for a more nuanced approach to climate-related risks in macroeconomic analysis and policy formulation.