Key facts
- Wholesale gas prices are passing through to Eurozone consumers faster than in the past, according to the ECB.
- ECB Chief Economist Philip Lane expects higher and more persistent inflation before it recedes towards the 2% target starting mid-2027.
- The ECB noted that the impact of wholesale gas prices on electricity prices has been lower due to increased renewable energy generation.
- Natural gas prices have doubled since the start of the Middle East conflict.
- Oil prices have increased by approximately 40% since the start of the Middle East conflict.
- The ECB raised interest rates in September by 0.25 percentage points.
Wholesale natural gas prices are now translating into retail and electricity inflation in the Eurozone more rapidly than in previous periods, the European Central Bank indicated. The ECB's economists highlighted in their Economic Bulletin that this faster pass-through is expected to be visible in inflation data within one to three months for most Eurozone members.
However, the impact on electricity prices has been less pronounced compared to 2022, partly due to a greater share of electricity generated from renewable sources. This has lessened the typical strong correlation where gas prices act as the marginal price-setter for electricity.
Natural gas prices have doubled since the onset of the Middle East conflict, while oil prices have risen approximately 40%. These energy price surges have reignited inflation concerns in Europe, complicated by efforts to build natural gas inventories for winter amid increased competition for spot LNG supply from Asia.
The ECB raised its key interest rate by 0.25 percentage points in September, following a previous hike in June. Inflation remains above the ECB's long-term policy target of 2%, currently standing at over 3%. The central bank has cautioned that the economic outlook is highly uncertain, with potential upside risks to inflation and downside risks to economic growth.