Inflation in the eurozone could turn out to be higher than already raised forecasts, and natural gas and electricity prices are becoming an increasingly serious risk, said the governor of the Slovak Central Bank and member of the ECB Governing Council Peter Casimir, quoted by Reuters, BTA reported.
The ECB expected to raise interest rates for the second time this year at its meeting on Thursday and increased a number of its inflation forecasts. This has fueled expectations in financial markets that there could be up to three more rate hikes next year.
“My focus is now less on oil and fuel prices and more on gas and electricity prices“, Casimir said. Food inflation, which plays a key role in sentiment and inflation expectations, is also expected to accelerate, he said. He stressed that the risks to inflation are “definitely tilted to the upside”.
Natural gas prices in Europe have hit their highest level in almost four years after European countries postponed filling their gas storage facilities in the summer in the hope that the conflict with Iran will end and prices will fall. Now, with stocks significantly lower than usual, countries are rushing to replenish them, further driving up prices and likely making heating and electricity more expensive.
Kazimir also warned of impending pressure on food prices due to a combination of factors, including drought in Europe, the El Niño climate phenomenon and rising prices for diesel and fertilizers. He said the energy shock had already lasted longer than expected and its effects had not yet fully hit the economy. The ECB's next meeting is on October 29, with markets pricing in a 60 percent chance of another rate hike after the financial institution's meeting.
Kazimir's warning was also supported by ECB Executive Board member Isabelle Schnabel, who also warned of worrying trends in energy prices, Reuters added. According to her, the conflict in the Middle East is proving to be much longer than initially expected, and the rise in energy prices is “quite worrying”. Schnabel pointed out that the concerns no longer apply only to oil, but also to refined petroleum products and natural gas, especially in Europe.