LONDON (Dispatches) - Rising energy prices will drive inflation across Europe this year, harming consumers and threatening the region’s post-pandemic economic recovery, economists warn.
European benchmark gas prices have already tripled this year, before peak demand sets in winter. Norway’s Equinor, one of the largest gas suppliers in Europe, called last week that the high energy prices could last well into 2022 and warned of possible price spikes.
“Prepare for gas inflation to spike in the eurozone,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. Rising energy prices will “accelerate headline inflation in the euro area,” added Daniel Kral, an economist at Oxford Economics.
There are multiple reasons for the price spike, from low European energy stocks and U.S. storms slowing gas exports from Texas to a rebound in demand as economies reopen. The climate policy, which includes the rising CO2 price, has also had an impact.
The eurozone energy consumer price index has already climbed to its highest level since records began in 1996. In August, its 15.4 percent a year increase, the largest increase in the series since the global financial crisis, pushed the eurozone headline inflation rate to a decade high of 3 percent.
That is well above the European Central Bank’s inflation target of 2 percent. However, ECB officials and economists believe the surge will be temporary due to one-off factors such as supply chain disruptions once the developed world emerges from the pandemic.
However, a prolonged rise in energy prices could undo these inflation forecasts. Higher energy bills would also weigh on household budgets and consumer confidence, jeopardizing economic recovery.