Wholesale natural gas prices in the Eurozone have significantly increased, and this rise is quickly being passed on to retail prices and energy inflation. According to a new report from the European Central Bank (ECB), these changes could be reflected in inflation figures within one to three months.
Impact of Rising Gas Prices on Inflation
According to studies conducted, the pressure on electricity prices in 2026 has been less compared to 2022. This decrease is due to the increased share of electricity generation from renewable sources. Specifically, ECB economists have noted that the impact of wholesale gas prices on wholesale electricity prices is usually strong, but this impact has currently diminished.
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Natural gas prices have doubled since the onset of conflicts in the Middle East, while oil prices have also increased by about 40%. This price surge has raised renewed concerns about inflation in Europe, especially given the intense competition for liquefied natural gas (LNG) supplies from Asia.
Changes in Interest Rates and Economic Expectations
The European Central Bank raised its key interest rate in June 2023 for the first time since 2023 and increased it by another 0.25% in September of the same year. These changes were made in response to inflation exceeding 3%, which is significantly above the ECB's long-term target of 2%.
Recent reports have predicted that changes in wholesale gas prices will be passed on to consumer inflation in over half of the Eurozone within one to three months. Additionally, about 10% of the region expects these changes to have an impact in the 4 to 6 month range, while one-third of the remaining expect an impact in the 7 to 12 month range. This trend indicates faster changes compared to 2022.
Finally, the European Central Bank has noted a decrease in the percentage of countries expecting price changes to be transmitted slowly in the 13 to 24 month range, with this percentage dropping from about 40% to 5%.
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