ECB warns about nature’s role in inflation risks
The European Central Bank (ECB) must account for risks arising from environmental degradation, Dutch ECB board member Frank Elderson warned Tuesday. Speaking at Euro Finance Week in Frankfurt, Elderson highlighted how nature loss could drive inflation similarly to climate change.
“If nature’s degradation continues, economic activities reliant on ecosystem services will be affected by disruptions in supply chains, influencing prices and, ultimately, inflation,” Elderson said.
The ECB is tasked with maintaining price stability across the Eurozone, where inflation has recently returned to the bank’s 2 percent target. In October, annual inflation rose to 2 percent, up from 1.7 percent in September, driven by slower declines in energy prices and accelerating costs for food and services, according to Eurostat. Core inflation, excluding energy, food, alcohol, and tobacco, held at 2.7 percent, its lowest rate since early 2022.
In the Netherlands, inflation is below the Eurozone average but remains under scrutiny. Dutch inflation fell to 1.9 percent in October, reflecting stable prices for industrial goods and lower energy costs compared to previous years. Despite these improvements, concerns persist about the potential for environmental factors to re-ignite inflationary pressures.
Elderson, also vice chair of the ECB’s Supervisory Board, emphasized that nature loss and climate change create economic volatility, affecting the bank's mandate. He called for these risks to be addressed in the ECB’s ongoing monetary policy strategy review, due for completion in late 2025.
During the ECB’s last strategy review in 2021, the institution introduced a climate action plan. Elderson has since urged policymakers to integrate environmental risks more thoroughly. “These challenges cannot be ignored in efforts to ensure long-term price stability,” he said.
