How Climate Change Is Driving Living Cost Crisis in Australia & NZ

The cost-of-living crisis is receiving increased media attention. Rising prices for goods and services are reducing purchasing power, impacting all households, particularly those with lower incomes and larger family sizes.

A paper from the Australian Institute highlights a strong connection between the cost-of-living crisis and climate change. In “Cost-of-living and the climate crisis. How climate change inaction drove up the cost-of-living,” Jack Thrower argues that Australia’s reliance on fossil fuels and the effects of climate change have increased the prices of essentials such as housing, food, and energy.

The report states that costs linked to climate change and fossil fuels have contributed to at least one-fifth of Australia’s inflation since 2022. This impact is expected to increase over time.

The author identifies insurance, food, and energy as the areas most affected by rising prices.

Insurance costs are rising as more frequent natural disasters lead to higher payouts and increased premiums for households. In Australia, one in twenty households pays insurance premiums equal to more than seven weeks of gross income.

Food prices have also risen by 20% since 2020.  Shifting weather patterns have affected food production and, in some areas, reduced the yields or the ability to grow particular crops.

The report also notes that underinvestment in renewable energy and reliance on imported fossil fuels have led to high electricity prices for Australian households.

Australia’s closest neighbour, New Zealand, is also hit by the cost-of-living crisis. Data from the New Zealand Treasury show that house insurance premiums have increased by more than 30% in some parts of the country since 2022, while the average lowest quote has risen to 22.6%. Victoria University’s chair of economics of disasters and climate change, Professor Ilan Noy, said the jump in premiums was “very significant” as insurers are becoming concerned about insuring properties facing higher natural-disaster risks. According to a climate change researcher, this trend of rising insurance premiums will only continue as the climate change risks, particularly from flooding, grow (Newton, 2024).

Stats NZ data show that between June 2019 and June 2023, food prices increased by up to 28%, amounting to an additional NZ$300 per household per week.

Food spending represents nearly 19% of weekly household expenses. Housing and utilities account for about 25% of spending, and spending has increased by 15.5%, or NZ$398 per week. Transportation accounts for 15.7% of weekly household expenses, and spending has increased by 16.5% or NZ$252 per week.

According to an ASB research report, the cost of living in New Zealand continues to rise. ASB economists estimate that household living costs will increase by NZ$55 this year, 2026, partly due to higher fuel prices resulting from the conflict in the Middle East. This adds $16.50 per week to household expenses. ASB chief economist Nick Tuffley notes that the expected recovery in household consumption will likely occur in 2027 rather than this year (Cost of living, 2026).

Data from both reports indicate that, although multiple factors contribute to inflation and higher living costs, climate change is also a significant driver. This underscores the need to address climate change through adaptation or mitigation to reduce its impacts. Without these actions, households will continue to face increasing financial pressures.