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KDI Economic Outlook 2024-1st Half Weather Condition Changes on Prices: Effects and Implications May 09, 2024

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KDI Economic Outlook 2024-1st Half Weather Condition Changes on Prices: Effects and Implications

May 09, 2024

  • profile
    Lee, Seunghee
Summary
■ Weather shocks raise consumer prices in the short term, primarily affecting fresh food prices. However, their impact on core prices appears marginal.

- Among various types of weather shocks, precipitation has a greater impact on prices compared to temperature, especially during summer.

- As global warming increases summer temperatures and intensifies weather volatility both in frequency and severity, such as through heavy rainfall and droughts, short-term price instability, especially for fresh food, may become more prevalent.

■ Despite the initial divergence between consumer and core prices, driven by volatile prices for food (fresh food) and energy, consumer prices tend to revert to core price levels over the medium term.

- This observation suggests that although temporary spikes in fresh food prices can elevate consumer prices in the short term, they have little impact on the underlying price trend.

■ Therefore, it is not advisable for monetary policy to sensitively respond to short-term fluctuations in fresh food prices.

- To reduce the impact of localized weather shocks on consumer prices, it would be prudent to explore structural measures, such as diversifying supply sources by increasing agricultural imports.

- In addition, strengthening climate resilience through measures like crop variety improvement is necessary to prepare for and mitigate the effects of climate change.
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