Scorching summer heat across the euro zone will likely worsen due to climate change and leave consumers facing higher prices, according to research by the European Central Bank.
(Bloomberg) — Scorching summer heat across the euro zone will likely worsen due to climate change and leave consumers facing higher prices, according to research by the European Central Bank.
Above-average temperatures, especially around the middle of the year, have the biggest impact on unprocessed food costs, according to a paper covering the bloc’s top four economies. Reasons may include lower agricultural and labor productivity, and drops in fresh-food supplies, authors Matteo Ciccarelli, Friderike Kuik and Catalina Martinez Hernandez said.
“As climate change brings more frequent and more severe weather shocks, the volatility and heterogeneity of inflation may increase and hotter summers may result in more frequent and persistent upward pressures on inflation,” they said. “With very hot summers set to become more frequent and more severe, stronger inflationary impacts may be expected.”
Unprocessed food inflation was found to increase by 0.1-0.2 percentage point within a year when temperatures were 1C (1.8F) above their historical average. If such a heat shock occurs in the winter or spring, it’s usually less significant and can even lead to slower inflation.
As well as tackling the worst price spike since the 1970s, the ECB is debating how longer-term changes to the global economy will impact its ability to safeguard price stability.
A recent paper from the Frankfurt-based institution argued that climate change, freak weather events and the energy transition will probably affect potential output — a key variable in the forecasts that inform interest-rate decisions.
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