Heat and extreme drought u Evropi lead to drying up of rivers and failure of yields. The consequence of this is the increase in transport costs and a sharp jump in food prices. How much does drought contribute to inflation?
In its statistics, the United Nations Food and Agriculture Organization (FAO) takes into account the consequences of global temperature rise, extreme weather conditions and reduced yields.
From 2020, for example, the prices of meat and oilseeds are rising strongly. According to FAO data, food prices today are a total of about 30 percent higher than in 2020.
And more recent studies indicate that climate change and weather extremes are affecting the rate of inflation, along with already existing supply disruptions caused by the wars in Iran and Ukraine, as well as shocks in the gas and oil markets.
Climate extremes cause price spikes
The study "Climate extremes, food price spikes and their wider social risks", published in July 2025, warns of such a spiral of price increases. Five European research institutions, as well as the European Central Bank (ECB), participated in its development.
"It could become increasingly difficult for central banks to ensure price stability if more frequent extreme weather events make food prices more volatile, both domestically and globally," the study states.
Because higher coffee prices in Brazil or Vietnam also affect inflation in the European Union.
Those challenges could further intensify if rising temperatures permanently fuel inflation. Namely, if inflation has to be fought with higher interest rates, it will also slow down economic growth.
Back in 2023, the ECB published a study with similar conclusions. In the paper entitled "Asymmetric effects of weather shocks on inflation in the Eurozone", the four largest economies of the European Union were analyzed.
Photo: AP Photo/Ted ShaffreyDrought
Different inflation rates within the EU
"The frequency and intensity of extreme weather events in Europe could create sustained upward pressure on inflation," the study said.
"Because the consequences of such shocks vary by season and country, our results also suggest that climate change could further increase differences in inflation movements across eurozone countries."
According to ECB data, the inflation rate in the EU in June ranged from 5,4 percent in Lithuania to 2 percent in France. At 2,4 percent, Germany was slightly below the EU average of 2,8 percent.
Among the main drivers of inflation are high transport costs, which rose by 5,3 percent.
"Persistent price increases"
"When ships on the Rhine can only carry a fraction of their normal cargo, transport costs per ton rise significantly," Torsten Schmidt, director of the business cycle research department at the Economic Research Institute RWI in Essen, told DW.
This, among other things, increases the price of energy products such as diesel and heating oil, which are largely transported by waterways. Higher costs are ultimately passed on to consumers.
Whether the ECB will raise the key interest rates again due to the increased costs of waterway transport and the likely significant shortfalls in yields is uncertain for now. The last time it raised the deposit interest rate was on June 11, 2026, by 0,25 percentage points, to 2,25 percent.
"For monetary policy, it is crucial whether it is a one-time and temporary increase in costs, or whether this effect is intertwined with other factors that encourage price growth, such as the increase in energy prices due to the war in Iran," explains RWI's Torsten Schmidt.
In the event of a "weather-induced price spike", there would probably not be an additional tightening of monetary policy, according to Schmidt.
It would be different if several crises overlapped each other and led to "broader and more persistent price increases that the ECB can no longer ignore."
Photo: AP Photo/Luca BrunoIllustration
"Warehouses, warehouses, warehouses"
Financial expert Holger Schultz from the German Association of Savings Banks and Giro Banks (DSGV) recommends in a statement of that organization:
"The German economy should be running again with higher inventories. Now the most important thing is one thing: warehouses, warehouses, warehouses."
This, he says, is a lesson from crises caused by supply chain disruptions in recent years.
"Whether it's the coronavirus pandemic, the war in Ukraine or the closure of the Strait of Hormuz," says Schulz. "Higher inventories in a world that has become unpredictable on so many fronts represent a kind of insurance premium."
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