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Inflation? – Yes. Climate Change? – Also Yes.

In recent months you are likely to have run across at least one news article on the skyrocketing price of lumber. Current lumber prices are – to say the least – historic. You are also likely to have read about the recent impacts of inflation across the wider economy; if you have not read about inflation, you’re all but certain to have noticed its effects at the checkout counter. Inflation = too many dollars chasing too few goods, as economists say. But why are there so few goods?

Economic analysts and climate scientists are increasingly drawing more direct links between commodity prices and climate change, and lumber is a prime example of this relationship. For the better part of the past decade, lumber prices (expressed as $ per 1,000 board feet) remained remarkably steady; roughly oscillating between $250 - $450 per 1,000 board feet. Since 2021, however, lumber has routinely shot up to well over $1,000 per 1,000 board feet. Such drastic (and historic) price increases are directly linked to climate effects which weigh on both the growth and health of forests, as well as logistics and the overall supply chain. For lumber, this is increasingly the result of destructive beetle outbreaks aided by warming winters, more frequent (and larger) forest fires, and flood events.

This climate-driven pricing story is beginning to sound familiar across an array of commodities markets. In some cases, the impacts are direct – consider, for example, the effects of volatile weather, heat waves, longer summers, and drought on general agriculture yields. In other cases, the impacts are indirect – here, consider the impact of increasingly frequent weather disasters on supply chains and energy infrastructure.

In all cases, both local anecdotes and wider data-driven studies abound – manufacturers can expect to pay more for climate-vulnerable commodities – and the list of commodities considered climate-vulnerable is growing.

Rather than simply chalking rising prices up to generic inflation and waiting out current conditions, producers and manufacturers dependent upon a stream of raw materials should consider reviewing operations and seeking out alternative products, supplies, or trade routes for materials and supply chains less vulnerable to disruption. In this sense, much of the lumber trade has already headed in this direction, with a considerable volume of U.S. lumber now being imported from further afield than in years past.

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