Extreme weather responsible for 10% of inflation: BOK report

A report by the Bank of Korea found that extreme weather events drove up inflation, particularly for the farming, fisheries and construction sectors.

Pears lie on the ground at an orchard in Suncheon, South Jeolla, on August 10, 2023, after a typhoon hit the region. [YONHAP]

The impact of abnormal weather conditions on the economy has become more intense, especially since last year, a report from the Bank of Korea (BOK) showed Monday.

The farming, fisheries and construction sectors were among the hardest hit by the climate crisis in terms of industrial output.

The report, written by Chung Won-seok of the central bank’s North Jeolla branch along with two co-authors, calculated Korea’s Climate Risk Index (CRI) based on the frequency of unusually high or low temperatures, precipitation levels, droughts and sea levels from 1980 to 2023. The research on the CRI is the first of its kind in the country.

According to Chung and his team, extreme weather conditions began to have a tangible impact on industrial output starting in 2001, and its effects have intensified in both scale and duration since.

From 2001 to 2023, extreme weather events hampered Korea's industrial output growth by 0.6 percentage points 12 months after the occurrence.

By sector, the agricultural and fisheries industry experienced a maximum 1.1 percentage-point drop in growth following extreme weather since 2020. Growth in the construction sector was also reduced by up to 0.4 percentage points due to climate conditions.

On the other hand, the impact of extreme weather events on inflation has been prolonged by two months since 2001 compared to the preceding years, while the scope of the impact itself declined by 0.05 percentage points, the report said. Such a shift was attributed to the increased imports of agricultural, fisheries and livestock products, as the reliance on domestic production has been reduced due to the Free Trade Agreements.

However, the impact of extreme weather conditions on inflation has been notably amplified since mid-2023, especially on food products including fruits. Unusual weather events were estimated to have been responsible for about 10 percent of headline inflation since last year to date, according to the report.

"The scope [and frequency] of the impact of abnormal weather events have increased, which has led to bigger effects on inflation," said Chung during a press briefing held at the BOK headquarters in central Seoul on Monday.

The report found that the CRI has been rising across all regions in Korea, but with regional gaps expanding over time. The CRI reading was significantly higher in Gangwon due to high temperatures and on Jeju Island due to rising sea levels compared to other parts of the country.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]