A recent study conducted by the Potsdam Institute for Climate Impact Research (PIK) and the European Central Bank (ECB), featured in Communications Earth & Environment, indicates that rising average temperatures may lead to a significant increase in annual food inflation and overall inflation rates by 2035. The study suggests that food inflation could surge by up to 3.2 percentage points per year, while overall inflation could rise by as much as 1.18 percentage points annually.
This effect persists over 12 months in rich and poor countries alike, making climate change an important economic factor for price stability.
In the study, the scientists looked at how climate indices – like high temperatures, extreme rainfall etc – have impacted inflation in historical data. The study shows that the inflation response to average monthly temperature increases is non-linear: Inflation goes up when temperatures rise, and it does so most strongly in summer and in hot regions at lower latitudes, for example the global south, according to the study authors.
The researchers also looked at the 2022 summer in Europe where heat and drought had a wide-spread impact on agriculture and the economy:
“We estimate that the 2022 summer heat extreme increased food inflation in Europe by about 0.6 percentage points. Future warming projected for 2035 would amplify the impacts of such extremes by up to 50 percent,” explains Maximilian Kotz, PIK scientist and first author of the study.
“These effects are very relevant for currency unions with a two percent inflation target such as the Euro zone, and will continue to increase with future global warming,” adds Kotz.
Other authors include Friderike Kuik, Eliza Lis and Christiane Nickel.
PIK is a leading research institution addressing relevant questions in the fields of global change, climate impacts and sustainable development. Natural and social scientists work closely together to generate interdisciplinary insights that provide a sound basis for decision-making for society, businesses and politics.
