JP Morgan AM: A warmer winter has contributed to sharp declines in gas prices
Unseasonably warm weather has helped natural gas prices to fall markedly, with European contracts more than halving in price over the last four months. We expect these declines to reduce headline inflation given wholesale natural gas prices feed into consumer gas and electricity contracts.
Consumer purchasing power should therefore improve, although the speed of this boost will depend on the length of fixed rate tariffs across different European nations. However, while much reduced, European gas prices remain around 40% above their pre-pandemic averages. They also sit around five times higher than in the US, compared to a 2015-19 average of two times higher. Thus, while lower absolute gas prices are a positive for energy-intensive European manufacturing as well as consumers, more will be needed for these industries to regain lost competitiveness.
