By David Milliken
LONDON (Reuters) – Climate change and countries’ different approaches to combat it are likely boost inflation and have other economic impacts that are directly relevant to central bank rate-setters, Bank of England policymaker Catherine Mann said on Monday.
“The research here points to increased inflation, increased inflation persistence, and increased inflation volatility associated with climate shocks, policies, and spillovers,” she said in the text of a speech published by the Bank of England.
Mann was part of a minority of three Monetary Policy Committee members who voted this month for the BoE to raise its main interest rate to 5.5% from 5.25%.
Much of the BoE’s work on climate change so far has focused on its potential longer-term impact on insurers and banks, through risks posed from extreme weather and on broader regulatory change that may affect their investments.
However, Mann said climate change policies were increasingly likely to have an impact on inflation over the shorter two- to three-year horizon which the MPC focuses on.
“Not only is it within my remit to respond to the macroeconomic effects of climate change, but my remit requires me to do so,” she said in prepared remarks for a University of Oxford seminar.
Research pointed towards price shocks created by changes in carbon pricing as having a more persistent effect on inflation than oil price shocks, she said.
Varying degrees of action to combat climate change in different countries were likely to create global economic spillovers, and the choice between carbon taxes and emission trading schemes was also significant, she added.
“Research on the impacts and interactions between carbon policies domestically and abroad is particularly relevant for the UK, where a government commitment to net zero in 2050 has already been made,” she said.