The European Central Bank published a Working Paper on how hypothetical global temperature changes affect euro area consumers’ inflation expectations, based on randomized experiments embedded in its Consumer Expectations Survey. The authors find that a 0.5°C rise in global temperatures increases five-year-ahead inflation expectations by 0.65 percentage points, with stronger effects among consumers with greater climate change awareness. The experiments, conducted across 11 euro area countries, randomly assigned respondents to temperature scenarios and elicited expectations for inflation and a range of macroeconomic indicators over the next five years. Higher temperature scenarios were associated with expectations of higher food, energy and broader prices, alongside weaker expected growth and stock prices and higher expected unemployment, government debt, taxes and house prices. Despite these pessimistic expectations, respondents showed limited willingness to pay for mitigation, with unconditional average willingness to pay around EUR 51 per month, or about EUR 3,060 over five years, and many placed primary responsibility for climate action on governments.
European Central Bank 2025-10-06
European Central Bank working paper estimates a 0.5°C warming lifts five-year inflation expectations by 0.65 percentage points
The European Central Bank's Working Paper explores how hypothetical global temperature changes impact euro area consumers' inflation expectations, revealing a 0.5°C rise increases five-year-ahead expectations by 0.65 percentage points. The study, using randomized experiments across 11 countries, links higher temperatures to expectations of increased prices, weaker growth, and higher unemployment. Despite these concerns, respondents showed limited willingness to pay for climate mitigation, averaging EUR 51 monthly.