In recent years, the rise in extreme climate events has begun to leave increasingly visible marks not only on the environment but also on the real economy. Prolonged droughts, heavy rainfall and heatwaves are exerting growing pressure on price dynamics, especially in the food sector, where agricultural output reacts swiftly to shocks that damage crops.
It is within this context that the research conducted by Annalisa Gerboni developed in collaboration between the University of Bologna and Leithà akes shape. Her work explores the relationship between extreme weather conditions and food inflation through the lens of the E3CI Index, the European tool designed to monitor the evolution of extreme meteorological events.
Food inflation and extreme events: a study by Annalisa Gerboni
One of the key international references on this topic is a study by the Banca di Slovenia che impiega l’Indice come variabile climatica per valutare in che modo gli shock meteorologici si trasmettano ai prezzi dei prodotti alimentari non processati. Using a STAR (Smooth Transition Autoregressive) model-capable of distinguishing between periods of normal conditions and phases of climatic stress, and of adjusting price responses based on the severity of each event the study reveals a non-linear relationship between extreme events and rising prices.
Gerboni’s thesis builds directly on this work, replicating the STAR model to test the robustness of the E3CI-based results in the Slovenian setting. The replication fully confirms the original findings, strengthening confidence in the methodological approach. The replication fully confirms the original findings, strengthening confidence in the methodological approach. The analysis is then extended to the Italian case to examine the potential link between extreme events and food inflation in a different economic and climatic environment. Italy exhibits a similar pattern, albeit with a milder intensity—likely reflecting its distinct agricultural, economic, climatic and market characteristics.
E3CI as a leading indicator
The research also examines the predictability of the E3CI and its potential role as a leading indicator of climate-driven inflation. On one hand, models have proven effective in describing the ordinary fluctuations of the Index; on the other hand, they struggle to predict more extreme events, which are by nature rarer, irregular, and complex. This limited predictability of intense shocks makes it difficult to build a “pure” forecast of food inflation based on the predicted E3CI, because the uncertainty of the first phase would end up transferring to the second.
For this reason, in the estimation of predictive models, the E3CI was used in its observed values. It remains the fact that, in recent years, a sequence of exogenous shocks of a pandemic, energy, and geopolitical nature has made euro area inflation structurally more difficult to anticipate, reducing the reliability of models even beyond the climatic component.
In conclusion, the analysis highlights the importance of having data and tools specifically designed to monitor climate change and the shocks it generates. Within this framework, the E3CI Index proves to be a crucial resource for interpreting extreme weather events, understanding their evolution and assessing their economic repercussions.
For further information, you may contact the author of the study, Annalisa Gerboni.