Eurozone Braces for Gas Price Shock

The European Central Bank (ECB) has warned that the surge in wholesale natural gas prices will soon be felt by consumers in the Eurozone, potentially leading to higher inflation numbers.

According to the ECB's Economic Bulletin, the pass-through of wholesale gas prices to retail prices has accelerated, with most Eurozone members expected to see the impact within one to three months.

This is a faster pace than in 2022, when it took longer for wholesale gas price increases to be reflected in consumer prices. The ECB noted that the higher shares of electricity generated from renewables have dampened the pressure on electricity prices.

Natural gas prices have doubled since the conflict in the Middle East began, while oil prices have increased by about 40%. The ECB raised interest rates for the euro area in June and again in September to combat inflation, which is currently above 3% and running well ahead of the long-term policy target of 2%.

The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth. The ECB survey showed that changes in wholesale gas prices are expected to be passed on to consumer gas inflation within 1-3 months in more than half of the euro area, while one-tenth expect it to take between 4-6 months.