Euro‑zone policymakers are turning their attention to soaring gas and electricity prices as a new source of inflation pressure, said European Central Bank (ECB) Governing Council member Peter Kazimir on Monday. Kazimir, who heads the Slovak central bank, explained in a blog post that while oil and fuel price trends remain important, the energy market’s recent shock is now dominated by natural‑gas and power costs.
Higher inflation risk despite recent rate hikes
The ECB raised its key interest rate for the second time this year on Thursday and lifted many of its inflation forecasts, prompting market participants to price in up to three additional rate hikes over the next twelve months. Kazimir stopped short of calling for an immediate further increase, but warned that the bank’s “open mind” to the next move should not be read as hesitation. He added that the central bank will act decisively when data justify it.
“My attention is now focused less on oil and fuel prices, but increasingly on gas and electricity prices,” Kazimir wrote. “Food inflation, so important for perceptions and expectations, is also expected to pick up.”
Gas storage shortfalls and price spikes
Natural‑gas prices have climbed to a four‑year high after European nations delayed filling storage during the summer, hoping the conflict in Iran would end and prices would fall. With storage levels now far below historic norms, countries are scrambling to secure additional gas, driving prices higher and threatening to lift heating and electricity bills for households and businesses.
These energy‑price pressures come amid a “perfect storm” of other factors: a European drought, the El Niño weather pattern, and rising diesel and fertiliser costs that are key inputs for agriculture. While food‑price growth has been unexpectedly low so far, Kazimir warned that these dynamics could push food costs up in the coming months.
Inflation outlook tilted to the upside
“Inflation risks are clearly tilted to the upside,” Kazimir said. “The energy shock has already lasted longer than many expected. Yet its full consequences have not yet passed through to the economy.”
Financial markets currently see roughly a 60 % chance that the ECB will raise rates again at its next meeting on Oct. 29, and a further move before the end of the year is already priced in.
What this means for euro‑zone households
Higher energy costs could erode real wages and increase the cost of living for families across the euro‑zone, especially those already feeling the strain of higher food prices. The ECB’s readiness to tighten policy aims to anchor inflation expectations and prevent a wage‑price spiral.
For now, the central bank’s message is clear: policymakers are monitoring the energy market closely and stand prepared to act if inflation continues to climb above target levels.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
