Bracing for an inflation storm

An unprecedented synchronized spike in energy prices is causing an inflationary scare around the world ahead of the winter peak season. The price of the West Texas Intermediate, the American standard crude, leapt to near $78 per..

An unprecedented synchronized spike in energy prices is causing an inflationary scare around the world ahead of the winter peak season. The price of the West Texas Intermediate, the American standard crude, leapt to near $78 per barrel, the highest since November 2014, while the Brent crude, the international benchmark, went above $81.

International oil prices had been contained over the years thanks to an abundant supply from U.S. shale, but shale gas has so far been limited in stabilizing the market due to a faster rise in crude.

The seismic change in the energy industry has been the fundamental cause behind the volatility in fuel prices. The global race toward the environmental, social, governance (ESG) mandate and carbon neutrality goal has fanned energy prices. Demand for coal and natural gas has surged due to much less wind in Europe, with a high reliance on wind farm for power resourcing. The November gas price at the Dutch TTF hub, a European benchmark, shot up 19 percent to the all-time high of 180 euros per megawatt hour at the London exchange. From the beginning of the month, the front-month gas price jumped 400 percent. The normalization of economic activities from the pandemic has also fanned natural gas demand and prices.

Fuel price stability may not arrive any time soon due to the variants in the energy environment and ahead of the cold season. The spike in fuel prices has fanned prices across the board in the supply and production end, as it is central to economic activities and industrial products. The consumer price index in September rose 2.5 percent on year, hovering above the 2 percent policy target for sixth straight month. At this rate, Korea’s annual inflation rate could finish above 2 percent for the first time in nine years.

It is hard to find unchanged prices at shops. Prices behind staple foods and necessities have all gone up. Milk prices could be next. Inflation has been coupled with migration to a green economy. Due to high demand for electric vehicles and batteries, prices of commodities like aluminum, copper and nickel have also jumped. Prices are rising due to stagnated production from stricter carbon rules.

Living costs have risen due to a drastic surge in home prices. Electricity bills are also expected to rise due to a jump in imported crude value. The government and companies must thoroughly prepare for an approaching inflation storm.