Rising Temperatures Forecast to Drive Inflation: Study Warns of Global Economic Impact
A recent study conducted by the Potsdam Institute for Climate Impact Research (PIK) in collaboration with the European Central Bank (ECB) sheds light on the far-reaching consequences of rising temperatures on global inflation rates. While the study's findings underscore the broader impact of climate change on economies worldwide, Europe emerges as a focal point for immediate concern. The 2022 summer heatwave in Europe, for instance, heightened food inflation by approximately 0.6 percentage points, offering a stark glimpse into the potential economic turmoil triggered by extreme weather events. Beyond Europe, the study reveals a concerning trend: rising temperatures could propel annual food inflation by 3.2 percentage points and overall inflation by 1.18 percentage points globally by the year 2035. This effect, exacerbated during hot summers and in regions closer to the equator, poses a significant challenge to the Eurozone's two percent inflation target. Moreover, the nonlinear relationship between temperature increases and inflation rates suggests that extreme weather events like heatwaves and droughts will further amplify inflationary pressures, threatening economic stability on a global scale.
