Ecoflation, a new worry, could hit consumer goods

Add another economic worry to inflation and deflation: ecoflation, the rising cost of doing business in a world with a changing climate.

Ecoflation could hit consumer goods hard in the next five to 10 years, according to a report by World Resources Institute and A.T. Kearney, a global management consulting firm.

Companies that make fast-moving consumer goods, everything from cereal to shampoo, could see earnings drop by 13 percent to 31 percent by 2013 and 19 percent to 47 percent by 2018 if they do not adopt sustainable environmental practices, the report said.

The costs of global warming are showing up now in the form of worse heat waves, droughts, wildfires and possibly more severe tropical storms but they are not yet reflected in consumer prices, said the institute's Andrew Aulisi after the report's December 2 release.

Instead, these costs are paid by governments and society, Aulisi said in a telephone interview. That could change if President-elect Barack Obama and the U.S. Congress push for a system that puts a price on the emission of climate-warming carbon dioxide, Aulisi said.

This is unlikely to happen next year in time for a December 2009 deadline to craft an international pact to fight climate change but it is more likely to happen in 2010.

These rising costs and possible tightening regulation of greenhouse gas emissions are not necessarily a bad thing, he said.

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Source: Reuters