Europe Faces Fresh Inflation Shock as Gas Prices Hit Four-Year High

Europe is facing another potential inflation shock as natural gas prices reach a four-year high and the ECB warns that energy risks are shifting from oil towards gas and electricity.

ECB policymaker Peter Kazimir says inflation risks are now clearly tilted to the upside.

European governments entered the summer with gas storage below historical norms after holding back purchases in the hope that the Iran conflict would end and prices would fall.

That gamble has not paid off.

Governments are now trying to refill storage at substantially higher prices.

The consequences could spread well beyond household energy bills.

Higher gas and electricity prices feed into manufacturing, transport, food production and the wider cost of living.

The ECB has already raised interest rates twice this year.

Markets now see roughly a 60% probability of another increase on October 29.

EUROPE’S ENERGY VULNERABILITY RETURNS

Europe has spent years trying to reduce its exposure to external energy shocks.

Yet another geopolitical crisis is again feeding directly into European inflation.

Governments waited for cheaper gas.

Instead, gas reached a four-year high.

Now households and businesses could face higher energy costs just as the ECB considers raising borrowing costs again.

Europe’s energy security problem is becoming an inflation problem all over again.

Sources

Reuters: ECB shifts focus towards gas and electricity inflation risk