Drought in Europe pushes up costs and stokes inflation risks
Low water levels on rivers such as the Rhine are raising shipping and energy costs, while economists warn that weather extremes are increasingly influencing eurozone inflation.
Economists say extreme weather is increasingly leaving its mark on prices across Germany and Europe, even though research institutes have not yet been able to precisely quantify its effect on German inflation. Torsten Schmidt of the RWI – Leibniz Institute for Economic Research explains that low water levels on the Rhine mean ships can only carry a fraction of their usual cargo, sharply raising transport costs per metric ton. This also pushes up prices for energy sources such as diesel and heating oil, which are largely transported by water, with the added costs ultimately passed on to consumers.
The UN Food and Agriculture Organization (FAO), which factors global warming, extreme weather and crop losses into its data, reports that food prices are currently about 30% higher than in 2020, with meat and oilseed prices rising particularly sharply.
Studies warn of longer-term pressure
The European Central Bank, together with five European research institutes, published a study in July 2025 on climate extremes and food price spikes, warning that more frequent extreme weather events could make it harder for central banks to deliver price stability. Higher coffee prices in Brazil or Vietnam can likewise ripple into EU inflation. An earlier 2023 ECB study on the asymmetric effects of weather shocks similarly found that climate change could increase both inflationary pressure and divergence in inflation across eurozone countries.
According to the ECB, eurozone inflation in June ranged from 2% in France to 5.4% in Lithuania, while Germany stood at 2.4%, slightly below the EU average of 2.8%. A 5.3% rise in transport costs is one of the drivers of inflation. The ECB already raised its deposit rate by 0.25 percentage points to 2.25% on June 11.
Schmidt believes a temporary, weather-driven price spike is unlikely on its own to trigger tighter monetary policy, though the picture would change if multiple crises coincided. Holger Schulz, a financial expert with the German Savings Banks Association, advises German companies to return to holding higher inventory levels, calling it a kind of insurance in an unpredictable world.
