A war choked the Strait of Hormuz. A heatwave erased roughly 9 million tonnes from EU and UK grain forecasts. Oxford Economics now expects the weather to add more to 2027 food inflation than the fading war shock. The next inflation problem may begin not at an oil terminal, but in a field that became too hot to produce a harvest.
Benoît Merlo spent ten years preparing his farm in Auvergne-Rhône-Alpes for a hotter France: cover crops to hold moisture, rotations to spread risk, seed varieties bred for heat and drought. Then came a June in which the thermometer refused to drop. “With temperatures exceeding 38°C for weeks on end, everything is breaking down,” he said in a statement released by the Energy and Climate Intelligence Unit. He expects to lose half of some crops, and up to 70 percent of his soya.
Merlo did what farmers are constantly told to do: adapt. He invested, changed and prepared. The heat still crossed the line his preparations could defend. That makes his story more than a farming story. It is an inflation story, and the most striking macroeconomic claim of this summer came not from a central banker but from a crop forecast.
The Summer The Numbers Moved
June 2026 was the hottest June ever recorded in western Europe, according to the Copernicus Climate Change Service. France logged its hottest nationally averaged day on record; Germany, Denmark and the Czech Republic set all-time highs. It was the third major heatwave since late May, arriving while crops were most vulnerable.
The damage forced an almost unheard-of response from the grain trade itself. COCERAL, the association of Europe’s cereal traders, published an extraordinary, out-of-cycle forecast, cutting expected EU and UK grain production to 286.6 million tonnes, roughly 9 million below its own June estimate. The total is also 23.4 million tonnes below last year, though that larger year-on-year gap cannot all be blamed on the June heat. The Energy and Climate Intelligence Unit estimates around 10 million tonnes of gross losses, worth roughly 2 billion euros in farm revenue; after gains elsewhere in Europe, the net reduction is about 9 million tonnes, worth 1.8 billion.
None of this surprised climate science. World Weather Attribution’s rapid study carries a title that doubles as a verdict: fossil fuel emissions have rapidly worsened European heatwaves in just a few decades. And the summer is not over. As this is written, fires are burning across southern Europe, and the head of the EU’s Emergency Response Coordination Centre, Maria Zuber, warned that if the Iberian fires reignite, “we will have all Europe on fire” in August. The maize and sunflower still standing in those fields have weeks to go. A harvest is not safe until it is harvested.
When A Heatwave Outweighs A War
Here is where this stops being a climate story. Europe’s broken records coincided with a war at the world’s most important fossil energy chokepoint. On February 28, conflict erupted in the Persian Gulf and tanker traffic through the Strait of Hormuz collapsed by more than 90 percent within days, according to the UN’s Food and Agriculture Organization. Oil spiked. Fertilizer went vertical. Every economist reached for the 2022 playbook.
Yet when Oxford Economics forecast European food prices this month, it concluded the heatwaves will be “a stronger upward driver of food prices next year than the war,” as its economists wrote in analysis reported by Euronews. A war closed the strait through which roughly a quarter of the world’s seaborne oil trade normally passes, and the weather is still expected to matter more.
The numbers explain why. Deutsche Bank estimates the spring commodity shock will lift food prices by around 1.3 percent in the UK and 0.8 percent in the euro area, a meaningful but manageable increase. Heat does not replace that shock; it stacks on top of it. A European Central Bank working paper found Europe’s 2022 heatwave added 0.67 percentage points to European food inflation, and that a single temperature shock keeps pushing prices for up to twelve months afterward. Research led by Maximilian Kotz at the Barcelona Supercomputing Center shows what that looks like on a shelf: olive oil up 50 percent after the Iberian drought, rice up 48 percent in Japan, cocoa up 280 percent after a heatwave hit West Africa. Extreme weather is no longer background noise in the inflation data. It is a driver.
The War That Reached The World’s Farms
The Iran conflict still matters enormously, but its main effect on food travels through a slower channel: fertilizer. The Gulf supplies 30 to 35 percent of global urea, and roughly 30 percent of fertilizer trade normally passes through Hormuz, as FAO Chief Economist Máximo Torero has laid out in the organization’s analysis of the conflict. When the strait closed, urea roughly doubled, from around 400 dollars per tonne to over 850 in April, and the World Bank’s fertilizer index hit its highest level since October 2022.
Fertilizer is a delayed-action shock. Expensive urea in March does not change the price of bread in April; it changes how much farmers plant, and how well it grows, the season after. Much of the war’s food bill is likely to arrive around the 2027 harvest, varying by crop and region. That lag is why this summer’s calm shelves, with eurozone food, alcohol and tobacco inflation at just 1.5 percent in June, are an illusion of timing rather than a sign of safety. Commodity prices can move quickly; fertilizer decisions, harvests and retail contracts transmit those shocks more slowly, and supermarket shelves move later still. Even the FAO’s global cereal price index fell in June, though it remained above its level a year earlier.
The Margin For Error Is Shrinking
Europe’s harvest shock is landing in a global food system that still has buffers, but fewer than it did before. In the United States, the USDA forecasts the smallest wheat crop in more than half a century, with planted area the lowest since records began in 1919 and hard red winter wheat, the bread wheat of the Great Plains, the smallest since 1957 after severe drought. India’s monsoon arrived nearly 40 percent below normal in June before reviving in July, narrowing the deficit to around 16 percent. August rainfall still matters enormously, but India enters the season with substantial rice stocks; another export restriction of the kind seen in 2023 remains a downside risk rather than the base case. Farther down the same rice belt, Indonesia’s agriculture ministry counts more than 30,000 hectares of rice hit by drought, over 12,000 of them a total loss, in a country that recently halted rice imports in the name of self-sufficiency. China set a record summer harvest, yet Beijing’s own officials warn the far larger autumn crop faces floods, typhoons and abrupt swings between drought and deluge.
Agricultural economists have a name for several of the world’s granaries failing at once: multiple breadbasket failure. 2026 is not that. It is subtler and harder: a synchronized run of merely bad years, each survivable alone, collectively draining the cushion. Smaller losses barely register in Western headlines: flash floods left Bangladesh facing a rice shortfall of more than 200,000 tonnes, Reuters reported, and Brazil’s coffee industry warns El Niño could cut its expected record harvest by 15 to 20 percent. In fairness, the El Niño drying Asia has historically brought wetter seasons to Argentina and southern Brazil, so much of the market’s remaining relief now depends on rain falling on schedule over the Pampas. When buffers are thin, rain arriving on time in one region becomes everyone else’s insurance policy.
What It Costs, And Who Pays
For consumers, the shock arrives in waves. The first, from this autumn, hits what is made from grain: bread, pasta, cereals, oats, flour. Helena Hansson, professor of economics at the Swedish University of Agricultural Sciences, told the Swedish daily Dagens Nyheter this week that finished grain products will likely move first, and she does not rule out a shock of the kind Europe saw in 2022. The second follows in winter through the barn door, because grain is feed, often the largest variable cost in pork, chicken, eggs, milk and beef; those contract highs in Paris are next winter’s feed bills arriving early. The third could emerge from late 2026 into the 2027 harvest cycle, as fertilizer costs work through planting decisions and yields. A fourth channel is substitution: when European staples get pricier, buyers shift toward foods grown elsewhere, pushing up prices for products that never saw a European heatwave.
Then there is the distinction that matters most in this story. In Europe, what is coming is called inflation. In the countries importing the same wheat and rice, where families already spend half or more of their income on food, the identical price move is measured not in euros but in meals. In Kenya, FEWS NET expects a fifth of the maize in the Trans Nzoia grain basket to fail, and prices are already climbing, months before European shoppers notice anything. There, prices are already politics: in May, nationwide protests over war-driven fuel price hikes left at least four people dead, in a country where food inflation was running above 9 percent before the harvest failed. The two shocks in this article, the war and the weather, have already drawn blood in Kenya. The word inflation flatters the problem. For Europe’s middle class, food gets more expensive. For many of the world’s poorest, it becomes unaffordable.
And this week, the pressure reached Europe’s own border. In two days, close to 60,000 people crossed from Morocco into the Spanish enclave of Ceuta, more than 50 people dying in the attempt, and within hours France had tightened its border with Spain and Italy had suspended Schengen. No single cause explains a border crisis, and this one has geopolitics stacked through it. But the ground it grew from is well documented: seven years of drought, Morocco’s worst in four decades, nearly halved its cereal harvests and erased 720,000 agricultural jobs, pushing rural families toward the cities, the coast, and beyond, an out-migration the World Bank’s climate report on Morocco predicted in almost exactly these terms. Climate pressure does not stay in the elsewhere column. This week it swam around a border fence.
Now look at the calendar. The European grain shock, the Gulf fertilizer shock and the wider weather risks all converge on the same period: late 2026 through the first half of 2027. Three separate fuses. One dangerous window.
Three Scenarios For Your Grocery Bill
An honest forecast is a range, so here it is in household terms. In the base case, Oxford Economics sees eurozone food inflation rising from June’s 1.5 percent to around 3 percent in 2027, concentrated in the first half. For a household spending 400 euros a month on food, that is roughly 144 euros more over the year than if prices stood still, or about 72 euros more than if inflation stayed at 1.5 percent, with bread, pasta and eggs moving most visibly: absorbable for many, painful for low-income families.
In the perfect storm, another shock lands on the weakened system: India restricts exports, China loses part of its autumn crop, Argentina has a dry planting season, Hormuz never opens again, or Europe simply gets more heat. A strengthening El Niño is forming over the hottest ocean ever recorded, as I wrote here earlier this month, and the market is already twitching: in late July, Chicago wheat briefly rose above 7 dollars a bushel after attacks disrupted Black Sea grain shipping, while Brent crude briefly crossed 100 dollars after Houthi attacks on Saudi tankers in the Red Sea. Add one more shock to today’s thinner buffer and you risk a return to the 2022-23 shock, when euro-area food, alcohol and tobacco inflation peaked at 15.5 percent in March 2023. For the same household, that means 700-plus euros a year, alongside export restrictions and hunger spreading through countries already under strain.
In the relief scenario, part of which is already visible, de-escalation holds: urea has fallen back to 453 dollars per tonne, close to pre-war levels, the Southern Hemisphere delivers, and 2026 goes down as a warning shot. Markets can adapt to wars remarkably fast. The question is whether they can adapt as quickly to a climate that keeps moving.
The Difference Between 1.5 And 3 Percent
That base-case rise, a point and a half, sounds like a rounding error. In macroeconomic terms, it is where a failed harvest becomes a monetary problem. Food, alcohol and tobacco make up about 19 percent of the euro area’s price basket, and in June that category contributed 0.29 percentage points to the 2.8 percent headline rate. Double the food rate and you roughly double the contribution: three tenths of a point on headline inflation from crops alone, at a moment when the ECB is already eight tenths above its 2 percent target and trying to get back down.
The arithmetic is the smaller half of the story. Food prices carry outsized weight in how people perceive inflation, because they are the prices households meet most often. In an ECB survey, almost two-thirds of respondents said food prices shape their inflation expectations, more than any other item in the basket. A Bank of England study found food matters significantly more for expectations than any other component, energy included, and concluded that the risk of household expectations hardening into persistent inflation is greatest after a large food price shock.
That is the transmission investors should watch. Expectations can turn a one-off supply shock into an inflation problem: households that expect higher prices bargain for higher wages, firms that expect higher costs raise prices pre-emptively, and services inflation, nearly half the basket, can begin moving for reasons that have nothing to do with wheat. At that point a central bank is no longer looking at a harvest but at second-round effects, and its instrument for those is the price of money. A dry June in France, routed through the expectations channel, can end up in the interest rate on a mortgage.
There is a blunter channel. Because households cannot opt out of eating, higher grocery bills leave less for everything else. During the 2022-23 shock, consumers cut discretionary spending sharply, with apparel down 20 percent and snacks and alcohol down 15 percent in one pan-European survey, though those figures reflect broader cost-of-living pressure rather than food inflation alone. The direction is what matters: a failed maize harvest in France is, two quarters later, a weak quarter for European retail.
And Then The Thermometer
Every scenario above shares a quiet assumption: that 2026 is unusual. The thermometer disagrees. This summer unfolded in a world roughly 1.4 degrees Celsius hotter than the late 1800s, and the IPCC’s physics is blunt: heat extremes that struck once a decade in the preindustrial climate already arrive nearly three times as often; at 2 degrees, more than five times; at 4 degrees, almost every year. And the models may be flattering even that. A study published this week in Science Advances compared 214 field-warming experiments against seven leading crop models and found they badly underestimate how rice responds to extreme heat: one degree of warming cuts yields by around 8 percent, roughly double the 3.8 percent modelled, and for Pakistan, India and Bangladesh the estimate roughly triples. Rice feeds more than half the world’s population. The gap exists for the reason that broke Merlo’s farm: models track averages, while damage is done by extremes. As one of the authors, PIK’s Christoph Müller, put it, when we check a summer forecast “we’re looking for the daily high, not the average temperature.” The authors caution that their figures isolate temperature and are not a complete production forecast. Even so, the ECB estimates warming could add roughly 1 to 3 percentage points to annual food inflation as soon as 2035. On the current path, the perfect storm stops being a scenario and becomes the operating environment.
Cooler seasons will still occur. But the climate today’s farmers are growing into is moving relentlessly beyond the one they prepared for. The near-term scenarios are about next year’s prices. The thermometer scenario is about whether harvest volatility quietly hardens into harvest decline.
The Problem Central Banks Cannot Fix
Return to the relief scenario and notice what it fixes and what it does not. Diplomacy can reopen a strait. Traders can reroute a tanker. No interest rate decision can make it rain on a French maize field in June. Rates can lean against second-round effects, wage spirals and unanchored expectations; they cannot restore a harvest. Climate-driven food inflation is a supply shock that recurs, escalates and compounds, which is why economists have given it its own name: climateflation. It behaves like a tax that rises with the temperature, collected at the checkout.
This is why the policy direction in Brussels deserves harder scrutiny than it is getting. In the very weeks the heat was destroying Europe’s harvest, the European Commission proposed slowing the EU’s carbon market. Independent analyses, including my own and one by Agora Energiewende, estimate the proposal could create room for around 2.4 billion additional tonnes of CO2 by 2050. It is one of 45 climate policy reversals I have verified over the past year, across Europe and North America. Weakening the instruments that limit fossil emissions, in the same season those emissions are visibly taxing every shopping basket, is a trade-off that deserves to be debated in exactly these terms: emissions policy is now, demonstrably, food price policy.
And here is the hopeful part, because there is one. Of the two shocks squeezing food prices, one has an off switch. The war premium can be negotiated away, and the fertilizer market’s rapid cooling shows how quickly that relief arrives. The climate premium is harder: adaptation, irrigation, breeding and storage soften the losses, as Merlo’s decade shows, up to a limit; only cutting the emissions behind the heat addresses the temperature itself. The same logic runs into the fertilizer bag. Natural gas often accounts for 70 to 80 percent of the operating cost of producing ammonia and urea, which is how a war at Hormuz reaches a wheat field in Kansas. Fossil-free fertilizer, renewable-hydrogen ammonia that European producers now make at industrial scale, could sharply reduce farmers’ exposure to gas prices and geopolitical chokepoints. Every green ammonia plant is, quietly, food price policy.
Merlo puts it more bluntly. In his telling, the disaster is no longer approaching his farm. He is already working inside it. Europe’s leaders can keep treating each heatwave as weather, each failed field as misfortune and each food price spike as a problem for the central bank. Or they can follow the chain of cause and effect all the way back to the smokestack. Climateflation is inflation with a cause we know, a bill we can already see, and a solution we have delayed for far too long.
