How do rising temperatures affect inflation expectations?

Working paper 843
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Published: 02 October 2025

By: Dimitris Georgarakos Geoff Kenny Justus Meyer Maarten van Rooij

Global temperatures are rising at an alarming pace and public awareness of climate change is increasing, yet little is known about how these developments affect consumer expectations. We address this gap by conducting a series of experiments within a large-scale, population-representative survey of euro area consumers. We randomly assign consumers to hypothetical global temperature change scenarios, after which we elicit their expectations for inflation and key macroeconomic indicators under these conditions. We find that a 0.5°C rise in global temperatures leads to a 0.65 percentage point increase in five-year-ahead inflation expectations, with effects particularly pronounced among consumers with greater awareness of climate change. Additionally, respondents expect adverse impacts of global warming on economic growth, employment, public debt, tax burdens, and their well-being. Despite these pessimistic expectations, many consumers demonstrate limited willingness to pay for mitigating further temperature increases. Instead, they place primary responsibility for climate action on governments. Our findings underscore the interplay between climate change and economic expectations, highlighting the potential implications for monetary and fiscal policy in a warming world.

Keywords: Climate change; Global Warming; Consumer expectations; Randomized Control Trial (RCT); Consumer Expectations Survey (CES)
JEL codes D12,;E31; E52; H31; Q54

Working paper no. 843

843 - How do rising temperatures affect inflation expectations?

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Research highlights:

• Using randomized experiments in the ECB Consumer Expectations Survey, we show that a 0.5°C rise in global temperatures raises five-year-ahead inflation expectations by 65 basis points.
• Consumers mainly attribute the expected increase in inflation to supply-side disruptions due to climate change, such as crop failures and rising production costs.
• The anticipated effects of rising temperatures on inflation are stronger among consumers with higher climate change knowledge, which is relevant for anchoring inflation expectations and posing challenges for monetary policy communication.
• Consumers anticipate broader economic consequences of global warming, including lower growth, suggesting they view rising temperatures as a negative supply shock to the economy.
• Despite widespread concern, consumers show limited willingness to pay for climate mitigation and primarily expect governments to take responsibility for climate action.

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