Analysis
Central banks start pricing in the cost of heat
Heatwaves are now showing up in inflation data, productivity figures and interest rate decisions. Economists are rewriting their models.
Economics editor
7 min read
Outdoor work was suspended in several cities during the July heatwave.
In July, as temperatures passed 40°C across southern Europe, something unusual happened in the economic data. Food prices jumped, construction output fell and electricity demand broke records, all in the same week.
For central bankers, it was a warning: heat is no longer a background risk. It is a monthly variable.
A new kind of shock
Economists are used to supply shocks that come from oil or war. Heat is different. It is seasonal, increasingly predictable and affects almost every sector at once.
Several central banks have begun publishing scenarios that include extreme heat. One now adjusts its short-term inflation forecasts using weather models.
“We used to treat the weather as noise. Now it is part of the signal,” a senior economist said.
Productivity in the shade
Research suggests that each day above 32°C reduces output in outdoor sectors by up to 5%. Adaptation, from shaded work sites to shifted hours, is becoming an economic policy question, not only a health one.
Tomasz Wren
Economics editor
Tomasz writes about money, work and why the numbers rarely tell the whole story.
