Climate change greatly influences the economy, although in some countries more than in others, and Spain is among the most negatively affected in Europe. Frosts worsen food supplies, floods disrupt supply chains, and a heat wave worsens productivity at work. And all these factors can aggravate the great economic evil of recent times: inflation. This is stated in a study by a group of researchers from the European Central Bank (ECB), which concludes that, of the four major economies of the Eurozone (Germany, France, Italy and Spain), Spanish inflation rates are the most sensitive to extreme temperature changes, especially with regard to food and services.

Last year’s heat wave, in which, according to AEMET, half of the summer days were under abnormally high temperatures, contributed to reducing the olive oil harvest from 1.5 million tons in 2021 to just 680,000. according to the forecasts of the Ministry of Agriculture. It was not only with oil, the 2022 heat wave increased food inflation by around 0.7 percentage points in Europe, notes another soon-to-be-published ECB publication. Scenarios similar to these will mean that by 2035 the forecast temperatures amplify the impacts of the weather on inflation by 50%, specify the authors of the ECB research yet to be published.

Climate shocks affect a wide range of products and services. ECB researchers indicate that it pushes up food prices, as it reduces its production and food supply; increases energy costs by increasing the demand for it to temper; it generates disruptions in the supply chains (for example, they indicate that the drought of rivers limits the fluvial transport capacity), which makes certain products more expensive and increases the costs of services, since the extreme weather worsens the productivity of work. From the ECB, they also ensure that it impacts the demand and supply of tourism.

The adverse effects of inclement weather on the economy are likely to play out more often and harder. If before, a violent heat wave occurred once every 50 years, now, due to global warming, it occurs once every 10 years, indicate the Intergovernmental Panel on Climate Change (IPCC).

A deviation of 1ºC increases fresh food inflation by 0.2%

The ECB researchers indicate that the effects are asymmetric between countries and depend on what time of year they occur. For example, a heat wave in Germany has limited impacts on inflation, while in Italy or Spain the increase in average temperatures has notable effects and lasts for months after the shock. in prices, which “causes even greater inflationary impacts in a context of changing world climate, particularly in the countries of southern Europe.”

For all countries, an increase in temperatures in summer makes unprocessed food more expensive by 0.1-0.2% during the summer and has a decreasing, but positive, impact throughout the rest of the year. Similarly, when there are higher than normal temperatures in autumn, the effects are also positive, although less than from June to August, these researchers explain. Processed foods, on the other hand, also suffer from inflation due to higher than average temperatures, only in the opposite months to those of the garden: in winter and spring. In addition, there is also a “delayed transmission” of the prices of basic foods until they become processed, they explain.

In the case of Spain, a deviation of 1°C from the historical mean temperature increases processed foods by 0.1% approximately one year after the shock; unprocessed foods around 0.2% in the same year; and services inflation rises by 0.07% about a year after the shock, according to the study itself.

In addition, the reaction of service inflation to an increase in average temperatures in Spain is positive and persistent between 20 and 30 months after the shock. The increase is not only linked to food, whose high price can make what is paid in a cafeteria or restaurant higher, it can also mean a decrease in labor productivity in sectors such as tourism and leisure due to the heat extreme.

The services sector, which in Spain accounted for more than 12% of GDP before the pandemic, is also sensitive to changes in the workforce. For example, an increase in autumn temperatures will increase the demand for tourist services and increase their price, they say from the ECB.

Spain is the country in which services and food have a higher proportion of the CPI. The category “Tourism, leisure and food” makes up around 40% of Spanish inflation, compared to 30% of the Eurozone average, according to Eurostat data used by the banking institution. The IPCC expectations indicate that the trend of warm days will only increase in Spain, so that inclement weather will not be a matter of life or death, as it was millennia ago, but rather a matter of economic survival.

Renewables will save energy costs

To all this we must add that there are fewer and fewer cold days and more warm days. Or what is the same, each year there are fewer days of heating and more days of air conditioning. This can be seen from the indicators called degree days for cooling and degree days for heating (Cooling and heating degree daysin English), the calorific indicator has decreased by 27% between 1979 and 2020 at a general level, they affirm from Frankfurt (with data from Eurostat), while the degree days for cooling follow an upward trend.

From the banking institution, they indicate that energy is becoming more expensive due to abnormal temperatures, which means that electricity bills are higher due to the weather. However, from the ECB they warn that the different regulations of the electricity markets or the tax rates can alter the impact of energy. Similarly, the researchers state that “due to the transition to an energy system based on renewable energy, the relationship between climate and energy price is likely to change.”

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