WEBVTT - Climate Change Drives Global Inflation Even Higher 0:00:03.920 --> 0:00:07.880 June just rains and never stops thirty days and spoils 0:00:07.920 --> 0:00:12.800 the crops. Hello Stephanomics, here the podcast that brings you 0:00:12.840 --> 0:00:16.400 the global economy, and if you'll forgive the indulgence, a 0:00:16.480 --> 0:00:19.400 bit of Flanders and Swan. That was from the Song 0:00:19.440 --> 0:00:22.520 of the Weather, written back in the nineteen fifties by 0:00:22.640 --> 0:00:26.040 my father Michael Flanders and his partner Donald Swan. We 0:00:26.200 --> 0:00:29.480 Brits were famous for talking about the weather long before 0:00:29.480 --> 0:00:33.640 it was fashionable. But now everyone's doing it and it's 0:00:33.680 --> 0:00:38.120 no joke. Climate change is an inescapable part of our 0:00:38.200 --> 0:00:41.279 daily lives, with a growing impact on the economy and 0:00:41.400 --> 0:00:46.280 policy in most of the world. Increasingly extreme weather gets 0:00:46.360 --> 0:00:49.960 top billing on the nightly news. We're also becoming better 0:00:50.000 --> 0:00:54.279 informed about weather phenomena such as El Nino. So as 0:00:54.320 --> 0:00:57.560 you probably already know, al Nino is a period of 0:00:57.600 --> 0:01:00.440 warmer temperatures in the eastern part of the Pacific around 0:01:00.440 --> 0:01:03.360 the Equator, which can have knock on effects for the 0:01:03.400 --> 0:01:07.000 weather and much else in many different parts of the world. 0:01:07.600 --> 0:01:11.760 Recent Alninio's have seemed to become more intense, and the 0:01:11.880 --> 0:01:15.000 US Climate Protection Center has said there is a more 0:01:15.040 --> 0:01:18.360 than ninety percent chance of one unfolding later this year 0:01:18.640 --> 0:01:22.360 for the first time in four years. If basic crops 0:01:22.400 --> 0:01:26.080 are affected in poorer economies and food prices go up 0:01:26.120 --> 0:01:29.560 as they have in the past, that would be bad news. Indeed, 0:01:29.640 --> 0:01:31.959 after everything the global economy has been through in the 0:01:32.000 --> 0:01:35.320 past few years. In a few minutes, I'll hear more 0:01:35.360 --> 0:01:38.520 about what we might have to expect from a strategist 0:01:38.560 --> 0:01:41.880 at Deutsche Bank who's looked at the historical record. I'll 0:01:41.920 --> 0:01:45.200 also talk to a global economist from Bloomberg Economics who's 0:01:45.200 --> 0:01:48.880 made a stab at estimating exactly how prices and growth 0:01:48.920 --> 0:01:51.960 could be affected in different parts of the world. But first, 0:01:52.320 --> 0:01:56.680 here's Bloomberg's LAWA Curtis with related news from that crucial 0:01:56.960 --> 0:01:59.880 artery of global trade, the Panama Canal. 0:02:02.920 --> 0:02:05.840 Water levels in Panama's Gatoon Lake are falling fast and 0:02:05.880 --> 0:02:08.280 are projected to hit historic clothes by the end of July. 0:02:09.040 --> 0:02:12.600 Making matters worse, an al Nino system is forming, which 0:02:12.639 --> 0:02:16.080 typically makes the region hotter and drier than usual, and 0:02:16.120 --> 0:02:19.720 the water shortages could stretch into twenty twenty four. But wait, 0:02:20.080 --> 0:02:22.640 this is a podcast about economics, so why are we 0:02:22.680 --> 0:02:26.560 talking about a drought in Central America? Well, remember just 0:02:26.600 --> 0:02:28.560 a few short years ago, when we were all waiting 0:02:28.560 --> 0:02:31.760 out the pandemic. Stuck in our houses as we waited 0:02:31.800 --> 0:02:34.600 months for the new sofas and grills and other consumer 0:02:34.600 --> 0:02:38.440 goods to arrive, all that stuff was stuck on ships 0:02:38.520 --> 0:02:42.040 and in containers as a supply chain seized under pandemic 0:02:42.080 --> 0:02:46.519 pressure and consumer demand. We know now that the crunch 0:02:46.600 --> 0:02:49.440 caused shortages and delays that caused a huge spike in 0:02:49.480 --> 0:02:52.760 shipping costs and eventually helped spur the inflation rate to 0:02:52.800 --> 0:02:55.760 a four decade high, which the Federal Reserve has only 0:02:55.840 --> 0:02:57.320 just started to get under control. 0:02:57.639 --> 0:03:01.520 The Panamacanal is one of the essential what we call 0:03:01.600 --> 0:03:08.320 maritime chokepoints, because this basically cuts massive sailing distances very 0:03:08.320 --> 0:03:12.200 short when you can transit the Panama Canal. The Seuiz 0:03:12.240 --> 0:03:15.640 Canal is another one. Turkish straits a third one. 0:03:16.200 --> 0:03:20.120 That's Peter Sand, chief analyst at freight data company Zanita. 0:03:20.200 --> 0:03:24.440 It involves all kinds of supply chains of energy and commodities, 0:03:24.800 --> 0:03:29.800 and naturally also for containers shipping. It's a vital artery 0:03:30.680 --> 0:03:35.480 for containers traveling from far Eastern manufacturers into the US 0:03:35.520 --> 0:03:38.080 East Coast if they do not go via the Zeus. 0:03:37.880 --> 0:03:42.200 Canal, Cattuned Lake feeds the Panama Canal with fresh water 0:03:42.320 --> 0:03:45.360 to lift huge container ships eighty five feet above sea 0:03:45.440 --> 0:03:48.200 level and through twelve locks from the Pacific Ocean to 0:03:48.280 --> 0:03:52.120 the Caribbean. To manage low water levels, the canal has 0:03:52.160 --> 0:03:55.880 started to impose surcharges and draft limits, or how low 0:03:55.880 --> 0:03:58.320 the vessels can sit in the water, and that means 0:03:58.320 --> 0:03:59.560 they can carry less stuff. 0:04:00.320 --> 0:04:07.120 We have a really very volatile supply chain infrastructure. 0:04:08.000 --> 0:04:11.000 Stephanie Loomis is head of Ocean product for the Americas 0:04:11.080 --> 0:04:14.920 at Germany based Rina's Logistics. They're a freight forwarder, or, 0:04:14.960 --> 0:04:18.040 as she describes it, a travel agent for cargo. She's 0:04:18.040 --> 0:04:21.039 not too concerned about the drought just yet. There's just 0:04:21.080 --> 0:04:24.000 so much more capacity available on ocean liners compared to 0:04:24.040 --> 0:04:27.839 this time last year, and shipping rates are low for now. 0:04:28.640 --> 0:04:31.120 But there are other things worth watching that could compound 0:04:31.160 --> 0:04:32.840 the risk to supply chains. 0:04:33.520 --> 0:04:38.800 It doesn't take much to knock it off center and 0:04:38.960 --> 0:04:44.480 right now we've got several pretty major things brewing that 0:04:44.600 --> 0:04:47.719 if they should all come to the surface at the 0:04:47.760 --> 0:04:51.200 same time, we could be in deep trouble again. 0:04:51.800 --> 0:04:53.920 For those of you listening in Europe, some of this 0:04:54.000 --> 0:04:57.440 may sound familiar. The Rhine River, which stretches hundreds of 0:04:57.520 --> 0:05:00.000 miles from the Alps to the North Sea, is all 0:05:00.000 --> 0:05:03.760 already seeing water levels low enough this season to restrict trade, 0:05:04.040 --> 0:05:08.200 and fuel shipping costs have skyrocketed. The river is used 0:05:08.200 --> 0:05:10.840 to transport millions of tons of oil products and other 0:05:10.920 --> 0:05:14.560 vital commodities across Europe. Last year it got so low 0:05:14.680 --> 0:05:19.120 that trade was severely disrupted, affecting oil refining, power generation, 0:05:19.360 --> 0:05:25.640 and more. The supply chain world led out a collective 0:05:25.680 --> 0:05:28.680 sigh of relief last week when US West Coast dock 0:05:28.760 --> 0:05:32.080 workers and their employers reached a tentative contract agreement after 0:05:32.160 --> 0:05:34.840 more than a year of talks, but the deal is 0:05:34.880 --> 0:05:37.800 still subject to approval by the union's local chapters. 0:05:39.800 --> 0:05:41.360 It took a two week wave. 0:05:41.120 --> 0:05:44.640 Of labor disruptions to ultimately get the White House involved, 0:05:45.160 --> 0:05:48.240 and those port slowdowns had a knock on effect. At 0:05:48.240 --> 0:05:49.120 the Panama Canal. 0:05:49.360 --> 0:05:53.400 On first June, there was no waiting time whatsoever around 0:05:53.560 --> 0:05:58.359 the new Panamax looks going northbound as from from Asia 0:05:58.400 --> 0:06:02.400 to the US East Coast bound. But what we have 0:06:02.560 --> 0:06:04.960 right now in the middle of June, we have five 0:06:05.040 --> 0:06:06.200 to six days of waiting. 0:06:07.040 --> 0:06:10.040 As draft restrictions continue to tighten through the summer, will 0:06:10.160 --> 0:06:13.440 likely see more congestion and higher fees. For now, the 0:06:13.480 --> 0:06:16.880 canal limits are manageable for most shippers, especially the largest 0:06:16.960 --> 0:06:20.279 US retailers bringing in backpacks and kids shoes ahead of 0:06:20.279 --> 0:06:25.120 the back to school season. The businesses moving around heavier 0:06:25.160 --> 0:06:28.880 stuff like building materials and machinery could already be feeling 0:06:28.880 --> 0:06:29.560 the pinch. 0:06:30.560 --> 0:06:37.239 So you could see tile and granite and marble. If 0:06:37.320 --> 0:06:39.760 the freight costs, I mean, if you have to split 0:06:39.839 --> 0:06:43.880 that container, you have to split that shipment into two containers, 0:06:44.240 --> 0:06:47.560 you're essentially doubling your freight costs just like that. So 0:06:48.520 --> 0:06:53.159 this could impact some of these commodities costs to the consumer. 0:06:53.880 --> 0:06:56.880 Costly isn't a word that inflation hawks at the Federal 0:06:56.920 --> 0:06:59.760 Reserve want to hear. Even as the fight against in 0:06:59.800 --> 0:07:03.880 flat has been helped by falling shipping prices, price pressures 0:07:03.920 --> 0:07:06.279 are still proving to be stickier than many had hoped, 0:07:06.720 --> 0:07:09.840 running at about double the Central Bank's target of two percent. 0:07:11.560 --> 0:07:15.720 Georgetown economics professor and former IMF official Jonathan Austry says 0:07:15.760 --> 0:07:18.280 policymakers should keep an eye on the supply chain. 0:07:18.920 --> 0:07:23.280 First up, What we discovered was that the impact of 0:07:23.440 --> 0:07:27.720 rising shipping costs are much more persistent than the impact 0:07:27.800 --> 0:07:31.000 of rising energy and food prices, which is what we're 0:07:31.000 --> 0:07:33.920 grabbing the headlines in late twenty twenty one. In the 0:07:33.920 --> 0:07:35.080 second half of twenty. 0:07:34.840 --> 0:07:37.760 Twenty one, Austria and his colleagues found that the twenty 0:07:37.840 --> 0:07:40.960 twenty one bottlenecks, which caused a six hundred percent spike 0:07:41.080 --> 0:07:43.480 in the cost of shipping containers over the ocean from 0:07:43.560 --> 0:07:47.800 pre COVID levels, increased consumer price inflation globally by more 0:07:47.840 --> 0:07:51.160 than two percentage points in twenty twenty two, and for 0:07:51.280 --> 0:07:54.440 remote small island nations in the Pacific and Caribbean that 0:07:54.480 --> 0:07:58.120 rely heavily on imported goods, it added nearly another five 0:07:58.200 --> 0:07:59.360 percentage points. 0:08:00.160 --> 0:08:03.840 Shipping costs are a canary in the coal mine. They 0:08:03.880 --> 0:08:06.360 do tell us about future inflation. 0:08:06.720 --> 0:08:09.560 Ostre says, even with low base prices, a shipping cost 0:08:09.640 --> 0:08:13.000 increase of twenty percent boost the inflation rate yo point 0:08:13.000 --> 0:08:14.840 one to five percentage point a year later. 0:08:15.680 --> 0:08:18.160 I think the warning is here. If the drought and 0:08:18.280 --> 0:08:24.200 El Nino converge to cause shipping costs to again spike. 0:08:24.360 --> 0:08:28.760 In the second half of twenty twenty three, that should 0:08:28.800 --> 0:08:34.400 be in top of mind for FED policy makers, because 0:08:34.880 --> 0:08:37.640 again what we would expect is that that would be 0:08:37.880 --> 0:08:43.480 a contributing factor that weighs against the fed's disinflation effort. 0:08:44.440 --> 0:08:46.640 Sand and Loomis say if this drought had hit the 0:08:46.679 --> 0:08:49.559 canal last year, when the pandemic cargo surge was in 0:08:49.640 --> 0:08:53.440 full swing, it would have been a complete disaster. But 0:08:53.520 --> 0:08:56.679 with cargo volumes back closer to twenty nineteen levels, there's 0:08:56.800 --> 0:08:59.800 enough slack in global trade lanes to ensure presents are 0:08:59.840 --> 0:09:02.760 on store shelves in time for the holidays. But water 0:09:02.840 --> 0:09:05.800 levels in panama are still projected to hit record lows 0:09:05.800 --> 0:09:09.200 by July, and for businesses that just realign their supply 0:09:09.280 --> 0:09:11.760 chains to be closer to consumers on the East Coast 0:09:12.320 --> 0:09:16.040 or to distribution centers on the Gulf Coast, rerouting all 0:09:16.040 --> 0:09:19.959 that stuff back through California Port could be an expensive headache. 0:09:20.440 --> 0:09:23.520 I'm not calling doom and gloom here, but I think 0:09:23.520 --> 0:09:26.520 we need to look further ahead also into twenty four 0:09:27.960 --> 0:09:33.000 because that's when the next dry season is about to 0:09:34.000 --> 0:09:38.360 see in Panamaica. Now and if we do not see 0:09:38.400 --> 0:09:41.400 the watershed filled up during the second half of this year, 0:09:42.000 --> 0:09:45.840 going into an ear year that is likely to bring 0:09:45.880 --> 0:09:50.600 around a longer low, say drought season or dry season 0:09:51.280 --> 0:09:53.720 than a normal year. We could end up with even 0:09:53.840 --> 0:09:56.840 lower water levels in twenty twenty four. So this may 0:09:56.880 --> 0:10:01.800 be the starter for full dinner ser next year. 0:10:02.400 --> 0:10:05.160 For Bloomberg News. I'm Laura Curtis in Los Angeles. 0:10:14.800 --> 0:10:17.040 Now you heard there that the Federal Reserve and other 0:10:17.080 --> 0:10:20.520 central banks might have reason to worry if Al Nino 0:10:20.600 --> 0:10:23.480 in the second half of this year ends up raising 0:10:23.559 --> 0:10:26.920 shipping costs. So what are the chances of that happening, 0:10:27.040 --> 0:10:31.520 and more broadly, how bad could those impacts be. Well, 0:10:31.600 --> 0:10:33.560 I can talk to two people now who've spent some 0:10:33.640 --> 0:10:37.280 time looking at this from the economic standpoint, Henry Allen, 0:10:37.440 --> 0:10:41.040 Macro's strategist at Deutsche Bank in London, and our own 0:10:41.080 --> 0:10:45.000 Barga vi Shaq Develle from Bloomberg Economics, a global economist. 0:10:45.480 --> 0:10:48.560 Welcome to both of you. Henry, since you're our guest, 0:10:49.040 --> 0:10:52.520 why don't you give us some context for thinking about this. 0:10:52.600 --> 0:10:58.199 How often have we seen El Nino have a significant 0:10:58.320 --> 0:11:01.200 impact on the economy in the last sort of generation 0:11:01.360 --> 0:11:02.680 or so. 0:11:02.679 --> 0:11:05.480 So the El Nino is a warming of the sea 0:11:05.559 --> 0:11:08.760 surface temperatures, in the Pacific, and that might sound kind 0:11:08.760 --> 0:11:10.960 of quite benign on one level, but the problem is 0:11:10.960 --> 0:11:14.480 that that causes the jet stream to move south, and 0:11:14.520 --> 0:11:18.000 that in turn is correlated with a higher frequency of 0:11:18.120 --> 0:11:22.360 natural disasters. Now, normally this is a regular cyclical pattern 0:11:22.400 --> 0:11:25.080 that happens around every two to seven years on average. 0:11:25.320 --> 0:11:28.920 But what's really generating concerned this time are predictions from 0:11:28.920 --> 0:11:32.480 a number of climate agencies that this particular episode is 0:11:32.520 --> 0:11:34.640 going to be a strong one. So for instance, we 0:11:34.679 --> 0:11:36.920 last saw an El NINU in twenty eighteen nineteen, but 0:11:36.960 --> 0:11:40.080 that was quite a weak one. But this, at least 0:11:40.120 --> 0:11:42.600 according to the US Climate Prediction Center, could be for 0:11:42.720 --> 0:11:45.520 just the third time in the twenty first century, a 0:11:45.679 --> 0:11:47.840 strong EL NINU, and they're saying they think there's a 0:11:47.880 --> 0:11:50.800 fifty six percent chance that it will hit that strong 0:11:50.920 --> 0:11:55.080 threshold deeper into this year, around December January time. 0:11:56.040 --> 0:11:59.920 I think that the most recent sort of serious time 0:12:00.880 --> 0:12:03.240 in your piece you discussed was sort of between twenty 0:12:03.320 --> 0:12:06.240 fourteen and twenty sixteen. So what kind of impacts do 0:12:06.360 --> 0:12:06.960 we see there? 0:12:07.720 --> 0:12:10.360 So there were several Firstly, you had actually in twenty 0:12:10.360 --> 0:12:14.000 sixteen in particular, the biggest upward temperature anomaly on record 0:12:14.000 --> 0:12:16.360 at the time, that was the highest EPP temperature that 0:12:16.440 --> 0:12:19.199 the world had seen. You saw a higher frequency of 0:12:19.280 --> 0:12:22.080 hurricanes in the Pacific. In both twenty fourteen and twenty fifteen, 0:12:22.679 --> 0:12:25.960 that Pacific hurricane season had sixteen hurricanes, the joint highest 0:12:26.040 --> 0:12:30.280 number on record. Further afield, in Africa, you had the 0:12:30.320 --> 0:12:33.120 worst drought in decades in Ethiopia, a great deal of famine, 0:12:33.440 --> 0:12:36.520 and one study even found that because it created conditions 0:12:36.520 --> 0:12:39.960 that were beneficial for mosquito borne transmission, it even contributed 0:12:40.000 --> 0:12:42.360 to the spread of the Zeka virus. So a number 0:12:42.360 --> 0:12:44.600 of quite nasty effects for coming together there. 0:12:45.600 --> 0:12:48.120 That's one of the things that comes through in every 0:12:48.400 --> 0:12:51.200 bit of research that I look at is that the 0:12:51.240 --> 0:12:54.439 sheer range of impacts and the sort of unexpected consequences. 0:12:54.520 --> 0:12:56.480 And in another one that people are talking about currently 0:12:56.559 --> 0:13:00.880 is the very very high temperatures in South Asia that 0:13:01.000 --> 0:13:07.120 are potentially related to this kind of environment are pushing 0:13:07.160 --> 0:13:10.120 countries to be even more dependent on Russian energy, just 0:13:10.160 --> 0:13:12.760 at a time when we might have been wanting them 0:13:12.760 --> 0:13:16.400 to follow the US led sanctions. I guess the most 0:13:16.440 --> 0:13:21.400 significant time before twenty fourteen you mentioned was ninety seven 0:13:21.920 --> 0:13:23.679 ninety eight, so what happened. 0:13:23.360 --> 0:13:27.000 Then, so a bit like with the most recent one, 0:13:27.080 --> 0:13:29.480 the most reason very strong one in twenty fourteen to sixteen. 0:13:29.520 --> 0:13:32.120 You also had what was at the time again a 0:13:32.160 --> 0:13:35.600 global record temperature year in nineteen ninety eight, the warmest 0:13:35.600 --> 0:13:38.679 to date so far. For instance, there were massive rainfalls 0:13:38.720 --> 0:13:43.760 in California, San Francisco, so it's wettest rainfall season in 0:13:43.800 --> 0:13:46.720 over a century. You had major droughts in Indonesia, and 0:13:46.720 --> 0:13:48.760 similarly you actually saw quite a bit of disease as well. 0:13:48.800 --> 0:13:52.000 For instance, after major flooding in East Africa, you had 0:13:52.040 --> 0:13:55.760 an outbreak of rift valley fever in several countries, including Kenya. 0:13:56.600 --> 0:13:59.040 And we're talking about it this year. As you mentioned, 0:13:59.080 --> 0:14:03.439 the US Climate Center has put the probability of an 0:14:03.480 --> 0:14:06.960 al Nino pattern unfolding at more than ninety percent, but 0:14:07.040 --> 0:14:10.439 as you said, it's a question at how severe it 0:14:10.520 --> 0:14:13.840 is likely to be. You're a strategist looking at market 0:14:13.840 --> 0:14:17.960 impacts as well as the economy. Are we already seeing 0:14:18.080 --> 0:14:21.960 signs of potential impacts in the markets or people anticipating 0:14:22.040 --> 0:14:23.160 impacts from El Ninia? 0:14:24.160 --> 0:14:27.040 Definitely, I mean the most obvious impact has been among 0:14:27.120 --> 0:14:30.800 certain agricultural commodities, so One example is coffee futures have 0:14:30.840 --> 0:14:34.280 recently hit their highest level since one particular contract began 0:14:34.400 --> 0:14:36.960 in two thousand and eight. You've got sugar prices that 0:14:37.040 --> 0:14:39.720 are already around their highest level in around a decade, 0:14:39.880 --> 0:14:42.960 and coco is at a seven year high as well. 0:14:43.560 --> 0:14:47.080 And that's consistent with what we've seen around previous Elmineo cycles, 0:14:47.120 --> 0:14:50.640 whereby in particular agricultural commodities see a big upward shock 0:14:50.960 --> 0:14:54.960 and that puts upward pressure on inflation intern and. 0:14:54.960 --> 0:14:56.800 It is I mean when you say those things, of course, 0:14:56.800 --> 0:15:00.800 that's people worrying about their coffee, chocolate. We'd certainly have 0:15:02.080 --> 0:15:06.120 concerns about rice prices, barga vie. I mean, there's the 0:15:06.200 --> 0:15:08.960 sheer range of impacts that we've talked about so far, 0:15:09.080 --> 0:15:12.040 whether it's flooding in East Africa or hurricanes in the Pacific, 0:15:12.080 --> 0:15:16.280 the spread of the Zeka virus in past times. Coming 0:15:16.320 --> 0:15:18.880 on top of the last twelve months where of course 0:15:18.880 --> 0:15:22.320 we also had the impact on food prices of Russia's 0:15:22.320 --> 0:15:27.239 invasion on Ukraine. How should we think about the potential 0:15:27.240 --> 0:15:31.560 impact of El Nino this year, on top of all 0:15:31.600 --> 0:15:33.880 those previous things that have happened in the global economy. 0:15:35.880 --> 0:15:39.800 It has been pretty worrying because the only unit, as 0:15:39.920 --> 0:15:44.800 Henry already mentioned, is going to definitely cause inflationary pressures everywhere. 0:15:46.160 --> 0:15:49.120 We did like a very simple modeling exercise where we 0:15:49.240 --> 0:15:53.120 looked at a few countries eleven countries, including the euro area, 0:15:53.640 --> 0:15:59.240 and tried to understand how this atmospheric pressure that is 0:15:59.360 --> 0:16:03.040 cost when the minor event occurs, could affect these countries. 0:16:03.360 --> 0:16:06.880 And what we found was that almost certainly irrespective of 0:16:06.920 --> 0:16:09.480 which part of the country, which part of the continent 0:16:09.560 --> 0:16:12.680 the country belongs to, there would be inflationary pressures, whereas 0:16:13.400 --> 0:16:16.640 it would definitely be much higher among countries that are 0:16:16.640 --> 0:16:20.400 in the tropics and the southern hemisphere specifically because these 0:16:20.400 --> 0:16:23.880 are the countries that I deal primarily with primary sector 0:16:23.880 --> 0:16:27.560 so agricultural commodity exports, So we would expect that there 0:16:27.560 --> 0:16:30.040 to be high inflation and lower growth. 0:16:30.960 --> 0:16:33.040 And just to put just to put some numbers on this, 0:16:33.600 --> 0:16:37.440 I mean, obviously there's a lot of uncertainty, but at 0:16:37.440 --> 0:16:41.640 the global level, are we going to notice this the 0:16:41.680 --> 0:16:46.200 impact on inflation or so, and certainly on commodity prices. 0:16:46.240 --> 0:16:48.760 What kind of numbers would we potentially talk about. 0:16:49.560 --> 0:16:52.880 Well, I think certain countries would definitely see high increases 0:16:52.920 --> 0:16:58.640 to Argentina, Brazil, India, Philippines, all these countries would definitely 0:16:58.640 --> 0:17:02.320 see higher inflation on a more global scale, depending on 0:17:02.360 --> 0:17:04.399 how severe the only NEA turns out to be, I 0:17:04.400 --> 0:17:07.479 think it could be even larger some of these effects. So, 0:17:07.760 --> 0:17:09.960 for example, in Argentina and Brussel, we expect about a 0:17:10.040 --> 0:17:14.840 zero point five percentage point higher inflation at an animal level, 0:17:15.119 --> 0:17:17.439 and depending on how severe and how long the El 0:17:17.520 --> 0:17:21.720 Nino event actually exists, it could be much much greater. 0:17:22.160 --> 0:17:24.960 And given that there are significant spillover effects both from 0:17:25.000 --> 0:17:28.960 trade and financial linkages, this could easily seep through even 0:17:29.000 --> 0:17:33.920 to like developed countries or countries that are not directly 0:17:33.960 --> 0:17:35.440 impacted by these weather phenomena. 0:17:36.680 --> 0:17:39.639 And I mean, Henry, I guess the various numbers. I 0:17:39.680 --> 0:17:42.160 think the sort of we could potentially be adding nearly 0:17:42.600 --> 0:17:46.800 four percentage points to non energy commodity prices. Obviously much 0:17:47.400 --> 0:17:49.760 that's going to have to translate into a much smaller 0:17:49.760 --> 0:17:53.240 impact on global inflation. But as Bargavi said, it varies 0:17:53.280 --> 0:17:55.920 a lot country by country. Does that sort of broadly 0:17:56.480 --> 0:17:59.080 tally with what you've been thinking at Deutsche BAC. 0:18:00.040 --> 0:18:02.119 Yes, absolutely, I mean One of the things that makes 0:18:02.160 --> 0:18:04.639 this El Nino phenomenon so hard to predict is that 0:18:04.720 --> 0:18:07.119 the effects are so variable. So there are parts of 0:18:07.119 --> 0:18:10.240 the world, for instance, like the southern United States, where 0:18:10.240 --> 0:18:12.080 it makes flooding a lot more likely. But there are 0:18:12.080 --> 0:18:13.680 other parts of the world, toicularly the other side of 0:18:13.680 --> 0:18:16.639 the Pacific, like Indonesian and Australia, where it makes drought 0:18:16.640 --> 0:18:19.119 more likely. So it's very hard to kind of find 0:18:19.320 --> 0:18:22.800 a single aggregate global effect that it has because that 0:18:22.840 --> 0:18:25.840 impact is so variable according to different regions, and. 0:18:25.840 --> 0:18:27.439 I noticed them. And of course when you think about 0:18:27.960 --> 0:18:32.720 possible places that where it's beneficial to have, for example, 0:18:32.840 --> 0:18:36.200 more rain. I mean, you know, if you're an avocado 0:18:36.400 --> 0:18:40.880 or an almond almond grower in California, it's actually quite 0:18:40.920 --> 0:18:43.080 good news to have more rain. But it's striking when 0:18:43.119 --> 0:18:46.840 you go through the list the iniquity of how the 0:18:46.880 --> 0:18:49.640 pain gets distributed Barga Vie. I mean, this is by 0:18:49.680 --> 0:18:51.840 and large going to be a much more negative impact 0:18:51.920 --> 0:18:54.600 and certainly have a bigger impact on inflation in the 0:18:54.640 --> 0:18:55.959 poorer parts of the world. 0:18:56.840 --> 0:18:59.879 And we look at things like how it affects economic growth. 0:19:00.200 --> 0:19:03.639 We found that Indian and Argentina about zero point five 0:19:03.640 --> 0:19:06.240 percentage points and that GDP got knocked off, but the 0:19:06.280 --> 0:19:08.880 effect is going to be much larger for Argentina than 0:19:09.280 --> 0:19:12.119 a country like India, which has extremely high GDP growth 0:19:12.160 --> 0:19:15.439 in general, So even if they're equally impacted, I think 0:19:15.480 --> 0:19:20.840 the smaller, poorer countries whose primary sources of revenue are 0:19:20.880 --> 0:19:25.119 like output generation, is due to these commodity experts. 0:19:27.520 --> 0:19:31.080 And I was struck that we had some even more 0:19:31.119 --> 0:19:37.240 extreme estimates by some Earth scientists at Dartmouth College in 0:19:37.280 --> 0:19:42.160 the US, Christopher Callahan and Justin Mankin, who estimated that 0:19:42.400 --> 0:19:44.720 what Henry was talking about in the late nineties that 0:19:44.920 --> 0:19:48.320 El Nina had led to nearly six trillion dollars in 0:19:48.400 --> 0:19:51.040 lost GDP, So that's about a hundred times more than 0:19:51.480 --> 0:19:56.000 the previously thought. And their point was that economists are 0:19:56.000 --> 0:19:59.520 sort of only measuring what we could see got damaged, 0:19:59.720 --> 0:20:02.800 or we could see that the slowdown in growth that 0:20:02.960 --> 0:20:05.920 was very clear and apparent at that time, and we're 0:20:05.960 --> 0:20:09.119 not recognizing that the sort of variability in the weather 0:20:09.520 --> 0:20:12.359 can hurt economic growth in a prolonged way. So you 0:20:12.440 --> 0:20:17.920 get persistent shortfalls in output that only unfold over several years, 0:20:18.359 --> 0:20:21.600 and as a result of taking those into account. They 0:20:21.640 --> 0:20:25.800 think you could see a cumulative shortfall in GDP over 0:20:25.840 --> 0:20:28.800 the next century of maybe eighty trillion dollars or about 0:20:28.840 --> 0:20:33.679 one percent of global GDP, just because of El Nino. Bargave. 0:20:33.800 --> 0:20:35.480 You and I were sort of joking that these were 0:20:35.520 --> 0:20:40.920 just madly big numbers earlier. But do you accept that 0:20:41.960 --> 0:20:44.560 we are potentially only looking at the tip of the 0:20:44.560 --> 0:20:48.520 iceberg when we do these straightforward analyses of the impact 0:20:48.560 --> 0:20:50.120 on food prices or growth. 0:20:51.040 --> 0:20:54.960 Yeah, definitely for starters. We haven't even started thinking about 0:20:56.040 --> 0:20:58.879 other kinds of still over effects of direct effects on 0:20:59.400 --> 0:21:02.879 these natural as asters bring about them if depending on 0:21:02.880 --> 0:21:05.440 the severity of the ol ninio, so there definitely could 0:21:05.520 --> 0:21:12.080 be other reasons that create negative impacts on commodities and 0:21:12.119 --> 0:21:16.920 therefore causing inflation. But again, like we joked about earlier, 0:21:17.119 --> 0:21:19.560 I don't necessarily know if it's going to be that large, 0:21:19.640 --> 0:21:23.439 but for sure, our simple analysis only looks at the 0:21:23.480 --> 0:21:25.879 direct effects, and there could be a lot more beneath 0:21:25.880 --> 0:21:26.360 the iceberg. 0:21:27.040 --> 0:21:30.679 Henry, Yeah, I think that's absolutely correct. I mean, one 0:21:30.760 --> 0:21:32.760 thing that I was quite surprised about reading about the 0:21:32.800 --> 0:21:34.960 old linear phenomenon was that it didn't just seem to 0:21:34.960 --> 0:21:39.359 have an impact on food commodities. It was also energy commodities. 0:21:39.359 --> 0:21:41.399 There seemed to be a positive correlation too. There was 0:21:41.440 --> 0:21:44.320 one paper, for instance, by the IMF a few years 0:21:44.320 --> 0:21:47.000 back that found that there was a statistical effect on 0:21:47.160 --> 0:21:50.199 energy and oil prices. For instance, if you have droughts 0:21:50.240 --> 0:21:53.560 that means you get less electricity from hydroelectric dams, you 0:21:53.600 --> 0:21:56.000 need to find that from other sources. Another thing is 0:21:56.040 --> 0:21:58.760 that farmers in trout areas need more water for irrigating 0:21:58.840 --> 0:22:02.840 their crops. So actually the spillover effects don't just stick 0:22:02.880 --> 0:22:04.879 with food, but they can spread to other categories the 0:22:04.920 --> 0:22:05.919 inflation baskets. 0:22:05.920 --> 0:22:08.919 Well, and I guess, as you mentioned at the starts, 0:22:09.000 --> 0:22:14.000 is it's technically a warmer phase for the eastern Equatorial Pacific. 0:22:14.240 --> 0:22:16.439 You know, in many ways it is a sneak preview 0:22:16.560 --> 0:22:20.960 of what we might see with climate change as we go. 0:22:21.160 --> 0:22:23.479 As we go forward, and as we get better at 0:22:23.520 --> 0:22:25.720 measuring the impact of climate change, I guess we get 0:22:25.760 --> 0:22:28.120 a bit better at measuring the impact of al ninia. 0:22:28.600 --> 0:22:33.359 Henry Allen and Barga Vi Satjevelle, thank you very much. 0:22:33.920 --> 0:22:34.280 Thank you. 0:22:36.760 --> 0:22:39.480 Well, that's it for this episode of Stephanomics. Next week 0:22:39.560 --> 0:22:42.159 we'll have more. In the meantime, you can get a 0:22:42.160 --> 0:22:45.760 lot more economic insight and news from the Bloomberg Terminal 0:22:45.960 --> 0:22:49.320 website or app. And for those of you wondering what 0:22:49.359 --> 0:22:52.040 the weather's like the rest of the year in. 0:22:52.000 --> 0:22:55.760 July and Sunny's hot is in shiny now it's not. 0:23:00.119 --> 0:23:01.720 Of col and dank and wait. 0:23:02.880 --> 0:23:05.959 This episode was produced by Magnus Henrickson, Yang Yang and 0:23:06.000 --> 0:23:09.480 Summer Sadie, with help from Oscar Boyd. Special thanks to 0:23:09.560 --> 0:23:13.800 Laura Curtis, Henry Allen, Barga, v Shaq Develle, and Michael 0:23:13.840 --> 0:23:17.320 Flanders and Donald Swamp. The executive producer of Stephanomics is 0:23:17.359 --> 0:23:21.359 Molly Smith, and the head of Bloomberg Podcast is Sage Bone. 0:23:25.800 --> 0:23:26.200 Bloody. 0:23:26.440 --> 0:23:35.040 Januinely again, I hope that's been helpful for those of 0:23:35.160 --> 0:23:36.240 you are planning your holidays