The outlook for inflation and the global economy largely depends on where energy prices will go — which makes the recent turmoil in natural gas markets a worrying development.
Natural gas prices in Europe closed at a record high on Monday (22).
They remain close to that level on Tuesday after Russia’s Gazprom said it would suspend flows to Germany via the Nord Stream 1 pipeline for three days from the end of the month.
Natural gas prices in Europe are almost 10 times higher than last year.
Prices in the US are significantly lower, but they are also rising.
On Monday, they reached their highest level in 14 years. They were driven by increased energy use during heat waves, demand from Europe as countries try to stock up for the winter, and delayed production.
Salomon Fiedler, an economist at Berenberg Bank, said the sharp rise in natural gas prices this week makes him confident that Europe is already slipping into recession.
S&P Global’s Purchasing Managers’ Index released Tuesday, which measures the services and manufacturing sectors of the economy, showed that business activity among the 19 countries that use the euro contracted for the second straight month.
There was reason for optimism. S&P Global said that “there were again signs that inflationary pressures at companies have passed their peak, with rates of increase in both input costs and output prices generally decreasing.”
But Fiedler expects that relief to be “short-lived”.
“With the recent rise in energy prices — wholesale gas prices in particular — we’re likely to see a little more inflation for the rest of this year,” he said.
This is not just bad news for Europe. Citi said British consumer inflation could peak at 18% in 2023, or nine times the Bank of England target.
High fuel demand and limited supply are also pushing up natural gas prices for buyers in Asia and, to some extent, North America.
Global business may be hit as the widened accounts weigh on demand for goods and add to their own costs.
And while central banks have no control over energy prices, they could be forced to keep raising interest rates if the impact ripples through the economy and they need to fight a new wave of inflation.
One caveat: oil prices are moving in the opposite direction. The barrel of Brent oil, the global benchmark, has fallen 16% since the beginning of July. US oil prices are 15% lower over the same period.
Other factors are driving this part of the energy market as traders focus on predictions that slower global growth will reduce fuel demand.
Oil prices could remain volatile in the coming months, however.
Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg this week that “extreme” volatility in markets is disconnected from fundamentals and that OPEC and its allies could be forced to cut output as a result.
Source: CNN Brasil
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