The ECB has already stated that the inflation in the Eurozone could continue well into 2024 and that there could be another escalation of food prices due to the decrease in fruit and vegetable supply from the Iberian Peninsula caused by the drought and the unusual heat in April and May.

As a result of the combination of these two factors, which is undoubtfully an episode of the climate crisis, a wide range of agricultural products were not cultivated in Spain and Portugal; two countries that supply most of the European partners.

This climatological alteration coincides with a minimum, but significant, rebound in inflation in April of up to 7%, which interrupts six months of correction, although with a slight one-tenth decrease of underlying inflation, which doesn't take into account energy and food, and that remains at 5.6%.

The figures are, however, unusually high in both cases in the ECB's quarter-century of existence and are well above the 2% limit set in its founding statutes as a sign that prices are kept at bay; a limit that has been flexible for a couple of years.

The drought situation is so extreme that it has led associations such as COAG to describe the damage in Spain, a country that produces nearly 25% of the fresh vegetables consumed in the EU, as "irreversible" for more than 3.5 million hectares of cultivation due to water shortages in regions such as Murcia and Andalusia. The Government has reacted to this situation by creating allocating more than 636 million euro in direct aid to financially support farmers and ranchers in the face of drought.

The concern about the current scenario, however, is not new. In 2021, a central bank of the Eurozone warned of the collateral damage that global warming would have on Europe's inflation. Their researchers advised “aligning climate impact to prices, because they will have a more than significant impact on inventories, productive capacity, investments, and agricultural trade in the future.” More importantly, they warned: "It will get worse and have an impact on the portfolios of companies and households," because it will also reduce economic dynamism.

Source - https://www.freshplaza.com