Spike in gas prices puts central banks in an uneasy position

En bref

The path toward a full economic recovery from the pandemic has found another stumbling block in the unprecedented surge in gas prices seen since the summer. While this may not ultimately derail growth, also given the still strong monetary support and the expansionary bias of the euro area fiscal policy, it is a big problem for central banks as they seek to start exiting QE and ma lead to choppier financial markets.
Market Commentary

Highlights:

  • The surge in gas prices has added to the hurdles of a recovery in advanced economies. Several factors lie behind the 350% surge in European gas prices since June, including lower inventories, past underinvestment (aggravated by the shift of capital to greener fuels), geopolitical issues and weather-related ones like the lack of wind limiting European renewables’ output. Some of them may not be resolved quickly, increasing the risk of persistently high gas prices.
  • This not only has a direct impact on consumer prices, but also on the costs of several gas-intensive manufacturing sectors, leading to a more protracted fallout on prices. The result would add to the upward pressure from high non-energy commodity prices, spurred by undersupply.
  • Switching from gas to oil can only help marginally, but would further put upward pressure on oil prices, on top of the impact of the recent decision by OPEC and Russia not to step up production above scheduled despite stronger demand. The role of US shale producer to rebalance supply has been weakened by tougher regulation and stretched balance sheets.
  • The prospects of higher inflation and risks to growth leave central banks in a bind. A few have already cited higher inflation as a reason to tighten policy earlier than expected; however, a more fragile growth path may also induce caution. This difficult trade-off could spill over into higher inflation risk premia. Moreover, the risk of higher inflation and weaker growth is detrimental for both stock and bond prices, leading to a higher correlation, low diversification benefits and higher risk premia.

     

Download the full publication below

Also interesting

Picture

© Generali Investments, tous droits réservés. Ce site internet est publié par Generali Investments et est considéré comme une communication marketing et une promotion financière liée aux produits et services des sociétés du groupe Generali suivantes : Generali Investments Partners S.p.A. Società di gestione del risparmio, Generali Insurance Asset Management S.p.A. Società di gestione del risparmio, Generali Investments Luxembourg S.A. et Generali Investments Holding S.p.A. (ci-après dénommées ensemble Generali Investments). En outre, le site peut contenir des communications de marketing et de promotion financière de produits et services de sociétés faisant partie de la plate-forme Multi-Boutiques coordonnée par Generali Investments Partners S.p.A. Società di gestione del risparmio, et en particulier de Generali Global Infrastructure, Sycomore Asset Management, Aperture Investors LLC, Plenisfer Investments SGR, Lumyna Investments et Generali Real Estate S.p.A. Società di Gestione del Risparmio.