Energy prices will push up inflation across Europe, economists warn


Newsletter: Europe Express

Soaring energy prices will push broader inflation across Europe this year, hurt consumers and threaten the post-pandemic economic recovery of the region, economists warn.

Benchmark Europe’s gas prices have already tripled this year, even before peak winter demand begins. Norway’s Equinor, one of Europe’s largest gas suppliers, Said Last week, high energy prices could last until 2022, warning of possible price spikes.

“In preparation for a surge in eurozone gas inflation,” said Klaus Bistesen, chief eurozone economist at Pantheon Macroeconomics. Daniel Kral, an economist at Oxford Economics, added that rising energy prices would help “accelerate headline inflation in the euro area.”

There is Multiple reasons Behind the surge in prices, from the decline in European energy inventories and the US storm that curtailed Texas gas exports, to the recovery of demand as the economy resumes. Climate change policies that seek to accommodate soaring carbon prices have also been effective.

The Eurozone Energy Consumer Price Index has already risen to its highest level since its record began in 1996. In August, the eurozone headline inflation was pushed up to 10 years by the series’ largest surge since the global financial crisis of 15.4 years. 3 percent high.

This is well above the European Central Bank’s 2 percent inflation target. However, ECB officials and economists say they expect the rise to be temporary as developed countries move out of the pandemic, due to temporary factors such as supply chain disruptions.

even so, Long-term rise in energy prices It can upset those inflation forecasts. Soaring energy prices also hurt household and consumer confidence and threaten economic recovery.

A vertical bar graph of the contribution of the euro area to a harmonious consumer price index, showing that energy is expected to boost inflation.

It “will act as an effective tax increase on households …. Investment research group Gavekal analyst Nick Andrews has cut discretionary spending and slowed Europe’s recovery, which is largely Is being driven by the recovery of personal consumption. “

As energy accounts for almost 10% of Europe’s personal consumption, “Energy prices rise by double digits annually … ING’s Chief Economist, Peter Vanden Houte, said:

The impact of rising energy prices is beyond the EU. In August, annual energy inflation increased by more than 60% in Norway, exceeded 20% in Canada and the United States, and recorded double-digit increases in South Korea, Chile and Mexico.

It has a spillover effect on other commodities, boosting oil prices and potentially food. It also urged the government to react.

Spain last week Presentation Euro 3 billion assault on energy company profits. The Italian government has already spent about € 1.2 billion to subsidize the consumer bill. Some EU lawmakers are also seeking an investigation into whether Russian gas exporter Gazprom manipulated gas prices.

The line chart of the index, 2015 = 100, shows that the Eurozone consumer price index rose to a record high in August.

Gazprom director Alexei Miller said Friday that low inventories could lead to high European gas prices during the winter, according to state-owned Tass news agency.

In addition, carbon permit prices have almost doubled this year as the EU central plate plans to reduce emissions. “This suggests higher energy prices in the future,” said Jessica Hinds, an economist at Capital Economics.

The direct impact of rising energy prices on inflation is largely indisputable. Barclays economist Silvia Ardanha has estimated that it could push major eurozone inflation to a peak of 4.3% in November this year.

Whether that leads to higher core inflation-the measures the ECB monitors when measuring whether to get rid of volatile energy and food prices and change monetary policy-is another question.

“Higher energy inflation alone cannot boost the ECB,” says Vistesen.

A line graph of the euro per ton showing the carbon market price of the EU emissions trading system

Also, rising energy prices do not necessarily slow down overall growth, as high household savings accumulated during the blockade may have little impact on consumer purchasing power.

Employment recovery can also help, as reflected in high job openings. “At this point, there is no change in our growth outlook,” said Ardanha.

Still, high energy costs will definitely be a problem for many, whether they are non-wealthy individuals or companies where energy is an important input.

“The winter solstice cold wave is now a real economic threat to low-income households and some manufacturing industries,” said Vistesen.

Additional report by Max Sedon of Moscow

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