How do rising temperatures affect inflation expectations?

Dimitris Georgarakos, Geoff Kenny, Justus Meyer and Maarten van Rooij

No 3132, Working Paper Series from European Central Bank

Abstract: 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. JEL Classification: D12, E31, E52, H31, Q54

Keywords: climate change; consumer expectations; Consumer Expectations Survey (CES); global warming; Randomized Control Trial (RCT) (search for similar items in EconPapers)
Date: 2025-10
Note: 483508
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253132

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