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Epidemics

Soaring Energy Prices Threaten Europe's Economic Recovery

Strategic Insights

— 2 min read

Consumers across Europe are bracing themselves for higher energy costs, which are likely to drive up inflation and threaten the region's post-pandemic economic recovery. As European gas prices have tripled this year, economists warn that high energy prices could last well into 2022, with possible price spikes ahead. The eurozone's consumer price index for energy has already risen to its highest level since records began in 1996, pushing the eurozone's headline inflation rate to a decade high of 3 percent in August.

Key Takeaways:

  • Energy prices have tripled this year, with benchmark European gas prices reaching new highs, according to Norway's Equinor, one of Europe's biggest gas suppliers.
  • Rising energy costs could drive an acceleration in the eurozone's headline inflation, with the eurozone's consumer price index for energy rising to its highest level since records began in 1996, a 15.4 annual percent increase.
  • Higher energy prices would hit household budgets and consumer confidence, threatening economic recovery, and acting as an effective tax increase on households.
  • Energy accounts for almost 10 percent of consumer spending in Europe, making a double-digit yearly increase in energy prices significant.
  • The high energy price surge has ripple effects on other commodities, pushing up the price of oil and potentially food, and has prompted governments to react, with Spain announcing a €3bn raid on energy companies' profits.
  • Norway's energy price inflation rose more than 60 percent in August, while Canada and the US saw topping 20 percent and registered double-digit rises in South Korea, Chile, and Mexico.

Statistics:

  • European gas prices have tripled this year.
  • Eurozone's consumer price index for energy has risen to its highest level since records began in 1996, with an annual 15.4 percent increase in August.
  • Eurozone's headline inflation rate rose to 3 percent in August, a decade high.
  • Energy accounts for almost 10 percent of consumer spending in Europe.
  • Norway's energy price inflation rose more than 60 percent in August.
  • Canada and the US saw energy price inflation topping 20 percent, while South Korea, Chile, and Mexico registered double-digit rises.
  • The price of carbon permits doubled this year.
  • Spain announced a €3bn raid on energy companies' profits.
  • Italy's government has spent €1.2bn to subsidise consumer energy bills.

Sources:

  • Bloomberg - "Europe's Gas Prices Rise to Record on Supply Shortages"
  • Equinor - "High energy prices could last well into 2022"
  • Pantheon Macroeconomics - Claus Vistesen, chief eurozone economist
  • Oxford Economics - Daniel Kral, economist
  • The Financial Times - "Energy prices surge to record highs as economies reopen"
  • Eurozone's consumer price index for energy - records since 1996
  • European Central Bank - 2 percent inflation target
  • Gavekal - Nick Andrews, analyst
  • ING - Peter Vanden Houte, chief economist
  • ING - Alexei Miller, head of Gazprom
  • Tass newswire - Alexei Miller
  • Capital Economics - Jessica Hinds, economist
  • Barclays - Silvia Ardagna, economist
  • Additional reporting by Max Seddon

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