# Gas price surge, just one more headwind for world economy
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-09-20
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Gas Prices Spike: Impact on Economy and Inflation
Meta Description: Soaring gas prices globally are set to increase winter fuel bills, impact consumption and spike inflation, posing challenges to the recovering world economy
URL: https://financedigest.com/gas-price-surge-just-one-more-headwind-for-world-economyhtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2021-09-20t154908z2lynxmpeh8j0n4rtroptp4global-gas-kemp-1736837831021-compressed.jpg)

By Dhara Ranasinghe

LONDON (Reuters) – Soaring gas prices that threaten to push up winter fuel bills, hurt consumption and exacerbate a near-term spike in inflation are another blow to a world economy just getting back on its feet after the coronavirus shock.

The gas market chaos, which has driven prices 280% higher in Europe this year and led to a 100%-plus surge in the United States, is being blamed on a range of factors from low storage levels to carbon prices to reduced Russian supplies.

For a graphic on Gas [prices soar this year:](https://www.financedigest.com/hong-kong-home-prices-drop-15-6-in-2022-snap-13-years-of-gain.html "Hong Kong home prices drop 15.6% in 2022, snap 13 years of gain")

https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkjymepx/gasprices2009.PNG

So high are tensions that several European Parliament lawmakers have demanded an investigation into what they said could be market manipulation by Russia’s Gazprom.

Whatever the causes, the surge carries major market implications:

1/GROWTH

Analysts [say it’s too early to downgrade economic growth forecasts](https://www.financedigest.com/publisher-bloomsbury-casts-upbeat-forecast-says-books-affordable-pastime.html "Publisher Bloomsbury casts upbeat forecast, says books ‘affordable pastime’") but a hit to economic activity looks inevitable.

Morgan Stanley reckons the impact in the United States, the [world’s biggest economy](https://www.financedigest.com/at-chinas-largest-trade-fair-exporters-worry-about-world-economy.html "At China’s largest trade fair, exporters worry about world economy"), should be small. While over a third of U.S. energy consumption in 2020 was supplied by natural gas, users were predominantly industrial, it notes.

Overall though, higher gas [prices raise the risk of stagflation – high inflation](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc.html "UK shop price inflation hits record 8% in January: BRC"), low growth.

It is quite clear there is a growing sense of unease about the economic outlook as a growing number of companies look ahead to the prospect of [rising costs,”](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise") said Michael Hewson, chief market analyst at CMC Markets.

2/INFLATION

Euro zone wholesale power [prices are at record](https://www.financedigest.com/tesla-posts-record-quarterly-deliveries-after-price-cuts-up-4-from-q4.html "Tesla posts record quarterly deliveries after price cuts, up 4% from Q4") highs, potentially exacerbating inflation pressures inflicted by COVID-related supply bottlenecks. In Germany, 310,000 [households face an 11.5% increase in gas bills](https://www.financedigest.com/44-of-uk-households-are-worried-theyll-have-to-foot-the-bill-for-net-zero.html "44% of UK Households are Worried They’ll Have to Foot the Bill for Net Zero"), data showed on Monday.

Noting German factory gate prices were already the highest since 1974, [Citi analysts predicted 5% hikes for electricity and gas prices](https://www.financedigest.com/4-for-the-price-of-1-what-you-can-buy-in-the-uks-top-northern-cities-for-the-price-of-a-london-pad.html "4 for the price of 1: What you can buy in the UK’s top northern cities for the price of a London pad") in January, adding 0.25 percentage points to consumer inflation next year.

Higher food costs are another side effect, given a [shortage of carbon dioxide which is used in slaughterhouses and to prolong the shelf-life of food](https://www.financedigest.com/we-are-going-to-die-food-shortages-add-to-sri-lankas-woes.html "‘We are going to die’: Food shortages add to Sri Lanka’s woes"). [Cuts in fertiliser production could also lift food prices](https://www.financedigest.com/musk-says-tesla-price-cuts-triggered-demand-2023-sales-could-hit-2-million-vehicles.html "Musk says Tesla price cuts triggered demand, 2023 sales could hit 2 million vehicles").

Goldman Sachs predicts higher [oil demand](https://www.financedigest.com/oil-prices-slide-as-hopes-for-china-demand-rebound-fade.html "Oil prices slide as hopes for China demand rebound fade"), with a $5 per barrel upside risk to its fourth-quarter 2021 Brent price forecast of $80 a barrel. Brent is trading at about $74 currently. \[O/R\]

For a graphic on [Oil prices:](https://www.financedigest.com/oil-prices-stable-heading-for-weekly-gain.html "Oil prices stable, heading for weekly gain")

https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgwlydpb/Oil%20prices.JPG

3/CENTRAL BANKS

Central banks are sticking with the line that the spike in [inflation](https://www.financedigest.com/swiss-national-bank-says-inflation-battle-not-yet-won.html "Swiss National Bank says inflation battle not yet won") is temporary — European Central Bank board member Isabel Schnabel said on Monday she was happy with the broad-based rise in inflation.

But as market- and consumer-based [measures of inflation](https://www.financedigest.com/factbox-government-measures-to-ease-inflation-pain-2.html "Factbox-Government measures to ease inflation pain") expectations rise, gas prices will be on central banks’ radar.

If we have higher inflation, transitory or structural, and have slower growth – it will be a very tricky situation for markets and [central banks](https://www.financedigest.com/analysis-china-central-bank-under-pressure-to-ease-is-hemmed-in-by-inflation-fed-jitters.html "Analysis-China central bank, under pressure to ease, is hemmed-in by inflation, Fed jitters") to assess, navigate and communicate,” said Piet Haines Christiansen, chief strategist at Danske Bank.

For a graphic on [inflation expectations:](https://www.financedigest.com/ecb-survey-shows-rising-inflation-expectations-despite-energy-price-falls.html "ECB survey shows rising inflation expectations despite energy price falls")

https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwkogrvo/inflation%20expectations.JPG

This week’s central [bank meetings](https://www.financedigest.com/banking-stability-worries-go-behind-closed-doors-at-imf-world-bank-meetings.html "Banking stability worries go behind closed doors at IMF-World Bank meetings") could test policymakers’ resolve. The Bank of England meeting on Thursday is in particular focus, given UK [inflation has just hit](https://www.financedigest.com/uk-shop-price-inflation-hits-record-8-in-january-brc-2.html "UK shop price inflation hits record 8% in January: BRC") a nine-year high.

With UK producer price inflation soaring, shipping costs showing little sign of cooling, commodity [prices higher](https://www.financedigest.com/vhs-tapes-selling-for-46000-higher-than-original-price.html "VHS tapes selling for 46,000% higher than original price") up and job vacancies tipping 1 million, there is a growing chance that higher prices will stick around for longer, said Susannah Streeter, senior analyst at Hargreaves Lansdown.

If they do, more (BoE) members may move quickly to vote for a rate rise sooner than expected [next year](https://www.financedigest.com/eu-could-face-gas-shortage-next-year-iea-warns.html "EU could face gas shortage next year, IEA warns"), but it would be an unpopular course of action with looming tax rises already hard to digest for many consumers,” she said.

4/ STATE BAILOUTS

[Britain is considering offering state-backed loans to energy firms after big suppliers requested support to cover the cost of taking on customers from companies](https://www.financedigest.com/britain-toughens-up-diversity-targets-for-uk-companies.html "Britain toughens up diversity targets for UK companies") that went bust under the impact of gas prices. One firm, Bulb, is reportedly seeking a bailout.

France meanwhile plans one-off 100 euro ($118) payments to millions of households to help with [energy bills](https://www.financedigest.com/explainer-why-europe-faces-climbing-energy-bills.html "Explainer-Why Europe faces climbing energy bills").

The story emerging from the UK [energy sector will soon be more relevant to the European](https://www.financedigest.com/analysis-forget-showering-its-eat-or-heat-for-shocked-europeans-hit-by-energy-crisis.html "Analysis-Forget showering, it’s eat or heat for shocked Europeans hit by energy crisis") market than Evergrande,” said Althea Spinozzi, senior fixed income Strategist at Saxo Bank.

And in a week packed with central bank meetings, she added that markets were “right to fret.”

5/COMPANIES

Spain shocked the utility sector last week by redirecting [billions of euros in energy](https://www.financedigest.com/petrofac-hitachi-energy-receive-14-billion-agreement-from-tennet.html "Petrofac, Hitachi Energy receive  billion agreement from TenneT") companies’ profits to consumers and capping increases in gas prices. Revenue hits at Iberdrola and Endesa were estimated by RBC at one [billion euros and shares](https://www.financedigest.com/novartis-launches-new-11-billion-share-buyback.html "Novartis launches new  billion share buyback") in the companies sold off heavily.

Since the move, investors have fretted about contagion to other countries, Morgan Stanley said. While seeing those fears as overdone, the bank acknowledged there was a risk of margin squeezes at European utilities in coming months.

Sector [shares are down for the third week](https://www.financedigest.com/shares-and-bonds-nervy-as-rate-hike-week-looms.html "Shares and bonds nervy as rate-hike week looms") straight

For a graphic on Gas sector turmoil a headwind for European stocks:

https://fingfx.thomsonreuters.com/gfx/mkt/klpykgnyxpg/stx2009.PNG

(Reporting by Dhara Ranasinghe; graphics by Saikat Chatterjee and Dhara Ranasinghe; additional reporting by Yoruk Bahceli and Sujata Rao; Editing by Sujata Rao and Hugh Lawson)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---