Their rise could lead food inflation to a 3.2 percentage points increase and total inflation by 1.18 percentage points per year by 2035, according to news from the Potsdam Institute for Climate Impact Research (PIK) and the European Central Bank. Based on the new study, the impact extends to all nations, with hot areas and summers more affected and suggests that future warming will worsen these effects. This effect remains for 12 months in both rich and poor countries, making climate change an important economic factor in price stability. In the study, scientists examined how climate indicators—such as high temperatures, extreme rainfall, etc.—have influenced inflation in historical data. The study shows that the inflation reaction to the average monthly temperature increase is non-linear: Inflation increases when temperatures increase, and makes it more intense in summer and in warm areas on lower latitudes, for example in the global south. Researchers also examined in the summer of 2022 in Europe, where heat and drought had an extensive impact on agriculture and the economy: “We estimate that the extreme heat of the summer of 2022 increased food inflation in Europe by about 0.6 percentage points. The future warming forecast for 2035 will enhance the effects of such extreme phenomena by up to 50%”, explains Maximilian Kotz, a PIK scientist and the first author of the study. “These effects are very important for monetary associations with a two-percent inflation target, such as the euro area, and will continue to increase with future global warming,” concludes the scientist.
Price stability risks due to climate change
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