How does the climate transition affect inflation?

Economic Commentaries, News To limit global warming, we need to consume less fossil fuels. An important part of the strategy for achieving this is to make the cost of such consumption more expensive than more environmentally friendly alternatives. This is one of the reasons why the climate transition may affect inflation.

The necessary climate transition will thus affect the conditions for the monetary policy conducted by the Riksbank and other central banks in the future. This is described in a new Economic Commentary by Mikael Apel, Senior Adviser at the Riksbank's Monetary Policy Department.

Read the entire Economic Commentary: How does the climate transition affect inflation?

In addition to rising energy prices, we can also expect the supply in the economy to decline as carbon-intensive technologies are phased out. At the same time, investment in new technologies contributes to higher demand. However, when the new technology is introduced, there will be positive counter-effects on the aggregate supply.

Mikael Apel describes in this Economic Commentary the various mechanisms by which economic actors adapt to more expensive emissions, and he discusses the consequences for inflation and monetary policy. He does not attempt to calculate the size of the effects of the climate transition, but notes that most of them point to higher inflationary pressures. However, the way that inflation develops will ultimately depend on the monetary policy conducted, says Mikael Apel.

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This Economic Commentary is published in a new format, as a web report directly on our website, to make it easier to read the report digitally. The report's homepage also has a pdf version available for those who want to download and save or print it. 

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Updated 13/04/2022