How is climate change influencing prices and output?

ABSTRACT This paper hypothesizes that climate change shapes Fiji’s prices and output. Using a macro-model with monthly data (2002–2022), we find strong evidence that rainfall, droughts, and cyclones raise inflation, while output remains insensitive. The economic magnitudes are large: a one-standard-deviation increase in log rainfall contributes 0.20 percentage points (pp) (or 83% of the mean) to monthly inflation. Event months are more damaging to inflation: cyclones +0.595 pp (or 245% of the mean); total disasters +0.485 pp (or 200% of mean); and droughts +0.432 pp (or 178%). Remittances, despite been a fiscally important part of Fiji’s economy, provide no cushion to inflationary pressures. We conclude that climate change operates chiefly as a supply-side inflationary shock, suggesting the need to integrate climate risks into Fiji’s fiscal and monetary policy frameworks.