Can Hurricanes Drive Inflation Higher?

September 21, 2018 | Jack Sannes, CFA, CAIA, Senior Client Analyst

Given the most recent hurricane to hit the U.S. — Hurricane Florence — our chart of the week examines the impact of U.S. hurricanes on the Consumer Price Index (“CPI”), a common measure of inflation. The chart shows the change in CPI over the 5-month period following landfall of each hurricane, as well as the cumulative damage of each storm in billions of dollars. Is it possible that the amount of damage caused by each hurricane, along with the subsequent interruption to economic activity could push prices higher as supply chains are disrupted?

Overall, the chart above shows that as impactful from a humanitarian sense these storms are, they really don’t have a meaningful impact on inflation. In most cases, inflation (as measured by the change in CPI) actually contracts in the months following a hurricane, but for all the storms shown here, inflation is positive 5 months after landfall. Although the storms become the focal point of news stories for weeks before and following landfall, their damage is small compared to the size of the U.S. economy, and their impact is mostly local as opposed to national. Furthermore, despite the disproportionate amount of media coverage devoted to hurricanes, the changes in CPI are more likely due to other economic factors which affect the U.S. economy more broadly.

So while there is no denying the damage and disruptions that hurricanes can cause, their impact on inflation is immaterial to the overall economy and economic measures.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.