ECB Shifts Focus to Soaring Natural Gas Prices

The European Central Bank (ECB) is paying closer attention to natural gas prices as they soar, potentially affecting inflation projections and interest rates. According to ECB policymakers, recent energy price developments are concerning, particularly the surge in natural gas costs.

Isabel Schnabel, an ECB board member, stated that oil prices are not just a concern, but also refined products like diesel and, of course, natural gas, which has reached very high levels. The current market price for December gas futures is over €83 per megawatt hour, well above the baseline projection of €60.1.

Inflation risks are indeed tilted to the upside, with Slovakia's central bank chief Peter Kazimir saying that his attention is now focused on gas and electricity prices. Food inflation, which was previously low, is expected to pick up due to a perfect storm of factors including drought and soaring diesel and fertilizer prices.