Brussels expects energy prices in Europe to start falling in the second half of 2022 at the soonest, while high prices for gas that are directly impacting electricity costs are projected to persist until next spring.
The peaks are set to stay for the next several months with no strong downward trend expected soon, according to the EU Commissioner for Economy Paolo Gentiloni.
“The European economy is moving from recovery to expansion but is now facing some headwinds,” he said in a statement, citing the energy price spike, rising consumer prices, a recent increase in Covid-19 cases, and supply-chain disruptions that are weighing on a wide range of sectors.
Market prices for natural gas, which serves as a key fuel for generating electricity, surged to five times their historic level earlier this year. The propelled prices have been attributed to a variety of factors, including depleted reserves, post-pandemic consumption growth and strong demand in Asia for available supplies of liquid natural gas delivered by ship.
Steep energy prices have resulted in accelerated inflation in the bloc, prompting the EC to reevaluate consumer price inflation in the Eurozone.
“Inflation in the euro area is forecast to peak at 2.4% in 2021, before declining to 2.2% in 2022 and 1.4% in 2023, as energy prices are set to gradually level out,” the EU report says.
“For the EU, inflation is expected at 2.6% in 2021, 2.5% in 2022 and 1.6% in 2023.”
European energy prices have soared at “a tumultuous pace” over the last month and are currently hovering above pre-pandemic levels, according to the report. The surge has reportedly contributed to annual inflation of 4.1%.
“High wholesale energy prices are making their way to retail prices for households and producers, though at a varying degree and pace across countries, with potential knock-on effects on consumption and business investment,” the report reads.