It's a spiral with disastrous consequences: Europe's ongoing drought is drying up rivers and ruining crops. The result: higher transportation costs and skyrocketing food prices.
Economic research institutes are still unable to accurately determine the negative consequences on the inflation rate. But certainly a lot of damage was done. "If ships sailing on the Rhine River are no longer able to transport only a small fraction of their usual cargo, transportation costs will rise significantly," Torsten Schmidt, head of the Department of Economic Studies at the RWI Institute for Economic Research in Essen, told DW.
This leads, among other things, to higher prices for energy sources such as diesel and heating oil, a large portion of which is transported via waterways. These higher costs will ultimately be borne by the consumer.
Declining harvests lead to higher food prices
In its statistics, the Food and Agriculture Organization of the United Nations (FAO) takes into account the consequences of rising global temperatures, extreme weather conditions, and reduced crop yields.
Since 2020, for example, the prices of meat and oilseeds have risen sharply. In general, food prices today, according to the United Nations Food and Agriculture Organization, are about 30 percent higher than they were in 2020.
Recent studies also indicate that climate change and extreme weather events affect the inflation rate, in addition to supply bottlenecks resulting from the wars in Iran and Ukraine, as well as oil and gas price shocks.
Extreme climate causes sharp rises in prices
A study published in July 2025, “Climate Events, Food Price Rising, and Their Broader Societal Risks” warns of such an inflationary spiral. Five research institutions from Europe participated in preparing the study, in addition to the European Central Bank.
The study stated: “It may become increasingly difficult for central banks to ensure price stability, as frequent extreme weather events have increased the volatility of food prices in both domestic and global markets. For example, rising coffee prices in Brazil or Vietnam lead to inflation in the European Union.”
These challenges may escalate so that continued rise in temperatures fuels inflation in the long term. This is because if inflation is combated by raising interest rates, this will lead to a slowdown in economic growth.
The European Central Bank itself had already published in 2023 a study that reached the same conclusion. In this paper entitled “Asymmetric Effects of Extreme Weather Events on Inflation in the Euro Area” the four largest EU economies are analysed.
Inflation rates vary within the European Union
“The recurrence and intensification of extreme weather events in Europe may lead to continued upward inflationary pressures,” the study stated. “Given that the effects of such shocks vary by season and country, our results suggest that climate change may exacerbate differences in inflation rates between euro area countries.”
According to the European Central Bank, the inflation rate in the European Union in June ranged between 5.4 percent in Lithuania and 2 percent in France. Germany came with 2.4 percent, slightly lower than the European Union average of 2.8 percent. High transportation costs of 5.3 percent are considered a factor driving inflation.
It is uncertain whether the European Central Bank will raise interest rates again in light of rising international shipping costs and expected large crop losses. The bank last raised the interest rate on deposits on June 11, 2026, by 0.25 percentage points, reaching 2.25 percent.
“What determines the course of monetary policy is whether this rise in costs is a one-time and temporary event or whether this effect overlaps with other factors pushing prices higher, such as energy prices as a result of the war with Iran,” explains Torsten Schmidt, head of economic research at RWI.
If there is a “weather-driven rise in prices” it is unlikely to lead to “tighter monetary policy,” according to Torsten Schmidt. But the situation would be different if multiple crises overlapped, leading to “broader and more persistent inflation that the ECB cannot ignore.”
"Stock, stock, stock"
Financial expert Holger Schulz of the German Association of Savings and Current Accounts (DSGV) recommends in a statement issued by the association: “The German economy should return to a policy of securing reserves for times of crisis: stock, stock, stock.”
He adds: “This is the lesson learned from the supply shortage crises witnessed in the recent past: whether it is the Corona crisis, the Ukraine war, or the closure of the Strait of Hormuz,” says Schulz. “Available inventories are our economy's biggest insurance policy in an unpredictable world.”
