Natural gas prices have risen significantly since the start of the Ukraine conflict in 2022, contributing to record inflation in the Eurozone in the autumn of this year.
This situation has prompted the European Central Bank (ECB) to embark on its fastest-ever rate hike cycle.
A recent ECB study highlights the growing importance of gas price shocks in Eurozone inflation, although their impact remains less than that of oil price fluctuations.
Decoupling gas and oil prices
Historically, gas prices were correlated with oil prices, but this correlation has diminished over the last two decades due to market liberalization.
Today, gas plays an independent role in the economy.
Economists at Banco de España and ECB point out that “compared to oil price shocks, gas price shocks have a pass-through effect on overall inflation that is about a third lower”.
Impact on production and consumption
The study reveals that gas is more crucial in the production process than in the consumption basket, resulting in a predominance of indirect effects.
A 10% rise in gas prices leads to an increase of around 0.1 percentage points in inflation, with a persistent effect beyond one year.
“The rise in gas prices between the beginning of 2022 and the peak reached in August 2022, close to 200%, would result in an increase in inflation of around 2 percentage points”, says the study.
Stabilizing gas prices
Since then, gas prices have fallen, and energy prices have put downward pressure on inflation this year.
Natural gas prices remain in a relatively narrow range around their mid-2021 levels.
The results of the study show that unexpected changes in gas prices have a more significant impact on countries using more gas in the production or generation of electricity.
Differentiated impacts by country
The researchers note that “our results suggest that unexpected changes in gas prices have a greater impact on inflation in Germany, Spain and Italy than in France“.
This analysis reveals marked differences in the way Eurozone economies are affected by gas price shocks, underlining the increased vulnerability of some countries to such fluctuations.
This new situation on the energy market calls for increased vigilance on the part of political decision-makers to stabilize the eurozone economy.
Governments and the ECB need to adapt their policies to cope with inflationary pressures and maintain economic stability against a backdrop of volatile energy markets.
