The (figurative, economic) storm clouds are starting to break in Europe as peak inflation has come and gone—thanks to sliding natural gas prices.
What happened: Natural gas prices in Europe fell to pre-Ukraine war levels for the first time, offering a sigh of relief to the eurozone, as high energy prices have been a major (perhaps the major) contributor to runaway inflation on the continent.
- After Russia (which supplied ~40% of Europe's natural gas) invaded Ukraine, prices spiked amongst the sudden uncertainty around supply.
- Last September, Russia cut Europe off almost entirely, and the continent moved quickly to round up alternatives and conserve energy
Why it matters: Falling gas prices are already slowing inflation in Europe. With the cost of living under control, Europe would have more power to continue sanctions against Russia, a move that's been contested over the effects on the region's energy supply.
- The effects are already apparent. Inflation tumbled in France, Germany, and Spain last month, with each country seeing greater declines than expected.
Why it’s happening: Europe has also been the beneficiary of an unseasonably warm winter which has curbed demand for energy use. Its energy policies (like stockpiling natural gas and sourcing more gas from outside Russia) have also worked wonders.
Yes, but: Prices are still sitting at historically high levels and it’ll take months for the lower prices, if they persist, to offer relief for businesses and consumers facing high energy bills.
Bottom line: European inflation remains high, with core inflation (which excludes energy and food) rising in Spain and Germany last month. Plus, a recession is still in the cards.