On Our Minds

On Our Minds Heat, households and headline CPI: Climate risk as India’s new inflation variable

Kunal Kundu • Climate is becoming a recurring inflation variable, not merely an episodic food shock. Rising heatwaves affect prices through farm output, labour productivity, household incomes, health costs, cooling demand and fiscal response. • India’s CPI remains structurally food sensitive. Under the CPI 2012 series, food and beverages carried a 45.86% weight, making weather-linked food volatility central to headline inflation dynamics. Recent CPI revisions reduce the food weight, but do not eliminate climate sensitivity. • Food-price transmission is the first-order channel. RBI research highlights that vegetable prices are particularly exposed to rainfall and temperature anomalies, while the Economic Survey notes that onion and tomato prices have been affected by production declines linked partly to extreme weather and monsoon-related supply disruptions. • Heat stress compounds inflation pain by weakening labour income. The Lancet Countdown estimates that India lost 181 billion potential labour hours due to heat exposure in 2023, while the ILO projects that India could lose 5.8% of working hours by 2030 due to heat stress. • The household channel makes food inflation more welfare relevant. When food prices rise and heat simultaneously reduces work hours or earnings, vulnerable households face a double squeeze through higher living costs and lower cash flow. • Policy needs to move from ex-post food management to ex-ante climate adaptation. Better weather-linked inflation forecasting, storage, cold chains, irrigation, climate-resilient seeds, heat-action plans and worker protection should be treated as part of India’s inflation-resilience architecture.

Climate should now be treated as an important input in understanding India’s inflation trajectory. Its impact is no longer confined to occasional crop losses or one-off food-price spikes. More frequent and intense heatwaves are transmitting into the economy through a wider set of channels: lower farm output, reduced labour productivity, income losses for informal workers, higher health expenditure, greater cooling demand and fiscal pressure from relief and adaptation measures.

Rising incidences of heatwave Climate change accelerating heatwave Heatwave Number of heatwave days 1.5 20

Observed Attributable to climate change

0.0 0 FY91 FY97 FY03 FY09 FY15 FY21 FY Source: SG Cross Asset Research/Economics, IMD (Note: heatwave declared = 1) Source: SG Cross Asset Research/Economics, Lancet

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The India Meteorological Department (IMD) has documented an increasing trend in heatwave frequency and duration across several stations, particularly in northern, central and eastern India. The Government of India has also acknowledged that climate change is reflected in the rising frequency and intensity of heatwaves in the country. This matters for inflation because India’s price basket, household budgets and labour market remain highly exposed to weather shocks.

Food remains the first-order inflation channel

The first-order transmission channel is food. India’s CPI has historically been highly food- sensitive: under the CPI 2012 series, food and beverages carried a weight of 45.86% in the combined CPI basket. RBI research notes that food prices are volatile and exposed to supply- side shocks, including weather disturbances, with vegetable prices particularly sensitive to rainfall and temperature anomalies. The Economic Survey 2024-25 similarly notes that onion and tomato prices were affected by production declines linked partly to extreme weather and monsoon-related supply disruptions.

The 2022 wheat episode illustrates the point. India restricted wheat exports after a March heatwave lowered expected production and raised concerns over domestic availability as heatwave curtailed output, pushed domestic prices higher and contributed to inflation concerns. The FAO noted that the export prohibition was imposed to ensure adequate supply amid high global prices and…