What's going on?
Data out on Monday showed that prices of energy have surged to record highs in Europe, but just remember: with great power comes great responsibility.
What does this mean?
The demand for energy picked up coming out of the pandemic, but providers didn’t seem to get the memo in time: there have been a variety of supply issues with natural gas, which is used to generate electricity. That’s pushed up the cost of power for the whole of Europe, with gas prices up more than 170% this year alone, and an index tracking German energy prices hitting an all-time high on Monday.
That has to make the European Central Bank (the ECB) nervous: soaring energy prices are synonymous with inflation, which the ECB shrugged off again last week as a temporary consequence of the pandemic. If it continues, the central bank may be forced to rethink its economic support policies much sooner than expected to keep price rises in check…
Why should I care?
The bigger picture: The road to energy hell is paved with good intentions.
Germany is Europe’s biggest energy market, and it’s leading the way in the transition to greener power. Not that it’s not doing the country any favors right now, mind you: poor weather conditions have seen its renewable energy production come in well below par this year. And since the country’s planning to shut down the equivalent of nine nuclear reactors by 2023, it’s staring down the barrel of a supply shortage that’ll push prices even higher.
Zooming out: Settle in.
It looks like this spike in energy demand could be here to stay: data out Monday showed that German factory orders rose unexpectedly in July, driven by a boom in demand for exports. That increase in orders will only push energy usage higher going forward, and prices along with them.