ECB Sees Elevated Inflation Risk from Surging Gas and Power Prices
Inflation Outlook and Energy Price Concerns
FRANKFURT, Sept 14 (Reuters) - Euro zone inflation could turn out higher than already elevated projections and the development of natural gas and power prices is becoming a key concern, European Central Bank policymaker Peter Kazimir said on Monday.
The ECB raised interest rates for the second time this year on Thursday and raised many of its inflation projections, fuelling market bets for up to three more rate hikes in the coming year.
Kazimir’s Policy Stance and ECB’s Approach
While Kazimir, an outspoken policy hawk, stopped short of calling for higher rates unlike some other colleagues, he said that policymakers' open mind to the next move should not be taken for hesitation and the bank will be decisive when evidence warrants action.
Focus Shifting to Gas and Electricity Prices
"My attention is now focused less on oil and fuel prices, but increasingly on gas and electricity prices," Kazimir, Slovakia's central bank chief, said in a blog post. "Food inflation, so important for perceptions and expectations, is also expected to pick up."
Natural Gas Storage and Price Surge
Natural gas prices are at a four-year high as European nations hesitated to fill gas storages over the summer in the hopes the Iran conflict would end and gas prices would fall sharply.
With storage levels far below historic norms, they are now rushing to store gas and prices are surging, likely pushing up heating and electricity costs and fuelling inflation more broadly.
Food Price Growth and Contributing Factors
Food price growth is meanwhile unexpectedly low but a perfect storm of factors, including a European drought, the El Nino weather phenomenon and soaring diesel and fertiliser prices, key inputs in agriculture, are expected to push up prices in the coming months.
Inflation Risks and Future ECB Decisions
"Inflation risks are clearly tilted to the upside," Kazimir said. "The energy shock has already lasted longer than many expected. Yet its full consequences have not yet passed through to the economy."
Upcoming ECB Meeting and Market Expectations
The ECB will next meet on Oct 29 and financial markets see a roughly 60% chance of a rate hike then while a move by the end of the year is fully priced in.
(Reporting by Balazs Koranyi, Editing by Louise Heavens)
