Economics Research Seminar

"Extreme Weather, Inflation Components, and Price Pass-Through: Evidence from Germany"

We develop a method to identify unexpected temperature shocks during extreme heat and cold in Germany using high-frequency ground-station and satellite data. We examine their effects on food and energy prices, key drivers of inflation, and trace pass-through to headline inflation. A one-standard-deviation heat shock raises summer food prices by up to 0.39%, while the same shock in winter lowers energy prices by 0.88%. Food-price effects appear mainly supply-driven, amplified by drought through agriculture, whereas energyprice responses are largely demand-driven through heating and cooling needs. Results are robust to alternative specifications, controls, regional heterogeneity, and forward-looking inflation expectations from survey data.