Fossil Fuel Price Hikes Drive Inflation, Experts Warn

New research from the London-based New Economics Foundation (NEF) has found that fossil fuel price hikes have a disproportionate impact on inflation across the EU. According to their study, for every 10% rise in oil and gas prices, overall inflation increases by 0.36 percentage points.

The NEF modelled what would happen if energy prices were to rise by 50%, finding that it would push up overall inflation by an extra 1.8 percentage points above already existing price pressures.

This is particularly concerning given the current state of energy markets, where oil prices have risen by 60% compared to last year, and Dutch benchmark gas prices are now 166% higher than last year.

The NEF notes that some of these price increases will be absorbed through government policies such as regulated tariffs and fiscal support. However, they caution that raising borrowing costs through ECB rate hikes could have unintended consequences for the transition to renewables.