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WHAT’S BEHIND THE rapid acceleration of European energy prices this year and why are some commentators predicting a winter crisis?
There really isn’t a single, underlying factor to blame for the phenomenon. In a nutshell, a mismatch between supply and high levels of demand has forced energy prices across the continent upwards with gas prices, in particular, tripling this year even before the arrival of winter.
It meant that in August, soaring energy costs added significantly to Eurozone inflation figures, helping to push the headline annual rate of increase to 3%, well above the European Central Bank’s 2% target.
It’s worth noting that energy prices are typically volatile from season to season. Both demand and supply are affected by things like weather conditions as well as the amount of oil and gas being imported, which is often determined by political and diplomatic factors. So volatile are energy prices usually that economists often strip energy prices — along with food prices — out of consumer price data altogether.
The resulting figure is called ‘core inflation’, which hit 1.6% in the Eurozone in August, the highest level since 2012. The concern now is that rising energy costs could start to push up core inflation when demand starts to spike again in winter, The Financial Times reports this morning.
Demand for energy has already surged this year as economies reopened and businesses ramped up production following the disruption of the past 18 months or so. But at the same time, European energy supplies have been constrained due to a host of problems.
Low wind speeds have forced utility companies to burn lots of coal, “depleting stockpiles of the dirtiest of fossil fuels“, writes the Bloomberg team.
Meanwhile, Russia is sending less gas to Europe and sourcing alternatives has proven tricky, with US exports curbed by a series of storms and extreme weather events in the Gulf Coast over the past eight months.
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