This summer's soaring temperatures threaten to drive up inflation and stifle industrial output in Europe in the short term as crops wilt and power plants struggle to keep up with rising demand.
Economists warned that food prices could climb in the coming months after drought throughout the region ravaged crops, while cooling problems that have caused widespread outages at nuclear power plants could dent industrial output at least temporarily.
The impact on economic activity is diverse, with absenteeism from work a factor in Britain, livestock dying in Spain, and Europe's key water transport network slowing as river levels fall.
A flash estimate of euro zone consumer prices, based on data from Germany and Italy, showed inflation eased to 1.9 percent year-on-year last month from 2.0 percent in June. But analysts said the decline would have been bigger were it not for a drought in Italy that pushed up food prices.
"The drought has interrupted the downward trend in prices," said Pasquale Diana, an analyst at J.P. Morgan.
The European Central Bank, which governs monetary policy in the 12-nation euro zone, is largely expected to keep interest rates steady for the time being, but is seen cutting towards the end of the year to boost growth. However, if inflation edges back over two percent it could decide to stay put.
On the whole, however, economists said they expected little lasting macro economic impact from the heatwave.
"There has been an impact on prices. Fresh food prices are higher than usual. But this is a short-term phenomenon," said Stephane Deo, senior economist at UBS Warburg in Paris.
"I don't buy the story that the heatwave will have an impact on industrial output. There may be a slight disturbance, but it will be short-lived and compensated within the month. There's no reason why there should be any impact on growth," said Andreas Rees, an economist at HypoVereinsbank in Munich.
Heatwave drama
With temperatures expected to remain well above 30?C until well into next week, electricity demand has surged as citizens from Scandinavia to southern Spain switched on fans and air conditioners to keep cool.
But power plants are struggling to meet demand.
Nuclear power production, which accounts for over a third of Europe's energy output, has been severely dented due to cooling problems caused by falling river levels and rising water temperatures, resulting in power cuts and soaring energy prices.
Consumers could also end up paying dearly for their picnics and barbecues, with bread prices seen climbing as grain crops wilt, while meat prices could also rise as livestock struggle to survive the heat.
Water levels on major inland shipping routes such as Germany's Rhine river have hit dangerously low levels, raising transportation costs because ships are forced to lighten their loads. Increased costs here could also filter through to consumer price inflation.
Germany's farmers association has said the heatwave will cost its members over a billion euros, although the country's ZMP market monitoring agency sees little impact on inflation.
In Germany, retailers' association HDE said the heat was keeping people out of stores and was set to hurt consumer spending just as recent sentiment indicators had pointed to a modest recovery.
Wilting crops hit CPI
In Spain, economists said increased poultry mortality could push up chicken prices, bumping up inflation, although greater demand for electricity could help industrial output.
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