On Tuesday 10 October, the European Central Bank (ECB) published a note in its Research Bulletin by three of its economists - Matteo Ciccarelli, Friderike Kuik and Catalina Martínez Hernández - based on one of their articles.
These economists studied the impact of climate change on price stability, focusing on the impact of higher average monthly temperatures.
These data are important when considering the ECB’s monetary policy, as price stability is part of the ECB’s primary mandate.
The authors analysed the impact of temperature shocks on inflation, taking into account the four largest economies in the euro area (Germany, Spain, France and Italy), the main inflation aggregates and the differences between the seasons of the year.
They point out that in recent years, temperatures have often exceeded the historical average.
In summer, the authors note asymmetric and heterogeneous movements in headline inflation in the euro area.
The authors found that when temperature shocks occur in summer, temperature rises have an impact on unprocessed food inflation in all four economies.
These effects are more marked and persistent in France, Italy and Spain than in Germany, perhaps because of a fall in agricultural productivity, labour productivity and the supply of fresh food.
When temperature shocks occur in winter or spring, the economists point out that the effect is smaller and can even lead to a fall in inflation.
As far as processed products are concerned, higher summer temperatures also drive up inflation in France and Spain, but with a time lag.
Core inflation also reacts to temperature shocks, but unsurprisingly this reaction is weaker than that of unprocessed food inflation.
Climate change is therefore likely to exacerbate the volatility and heterogeneity of inflation.
Further information: https://aeur.eu/f/8zp ; https://aeur.eu/f/8zq (Original version in French by Émilie Vanderhulst)