Oxford Economics said that global food shortages caused by extreme weather will lead to higher price increases in the eurozone than in G7 economies.
Economic advisors noted in a report that the “severe” impact of climate events on food prices could lead to an annual increase of 1.6 percentage points in food prices across countries sharing the same currency. Economists Robert Max and Ronan Hegarty stated in their research report released on Thursday that this would translate into an overall inflation rise of up to 0.6 percentage points.
As global warming continues, natural disasters and heatwaves in the future could lead to more crop failures, infrastructure damage, and supply chain disruptions. This week, several European countries have been hit by a heatwave. The resulting rise in food prices will increase pressure on central banks to curb inflation.
“Climate change and the loss of natural environments are increasingly driving up food prices and volatility, posing long-term economic risks,” the authors noted. “Recent studies have found that at least 14 cases of localized or regional food price surges since 2022 have been linked to unprecedented extreme weather events.”
The report states that drought in Brazil caused global coffee prices to rise by 55% between 2023 and 2024, while heatwaves in Ghana and Côte d’Ivoire drove cocoa prices up by 280%.
The report indicates that Europe is more sensitive to global markets compared to other G7 economies. Price shocks could lead to a 1 percentage point increase in food prices in the UK, while the US would see only a 0.28 percentage point rise and Japan just a 0.35 percentage point increase.
The report indicates that global commodity prices on average take two and a half years to return to pre-shock levels. The study was released as central banks are examining the impact of climate change on food supply and prices.
Researchers at Oxford Economics wrote: “The agricultural and food price channels deserve particular attention in climate stress tests, scenario analyses, and risk management exercises.”
