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Thursday, May 23, 2024

There may be a decrease in the rate of decline of wholesale gas prices during the summer months


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The outlook for a significant deceleration in inflation has become less obvious, as European wholesale gas prices have stayed stubbornly high in recent weeks, making it appear unlikely that households and businesses will experience significant reductions in utility bills during the summer.

Wholesale gas prices for delivery in August were trading at above €43 per megawatt hour on Thursday, which is a sharp decline from the peak of €300 last summer, yet not much different from the prices earlier this month, as reported by futures markets.

The UK wholesale gas prices, which are affected by the continental prices, also present a similar pattern.

The steep decreases in wholesale gas prices in the earlier months had taken off some of the pressure on households and businesses as the utility companies passed on the price decreases to their retail customers.

However, the cost of wholesale gas has been steady for a while now, indicating that the steep reductions in bills may be coming to an end as summer arrives, when there is less wind power on the grid.

Gas remains a major source of power on the all-Ireland grid since it is used by most of the electricity-generating stations.

Economists have been pointing out that inflation has remained ‘sticky’ despite the European Central Bank’s vigorous interest rate hikes since last summer, in an attempt to rein in inflation.

New IMF forecasts this week predicted that eurozone consumer price inflation rates would drop to an average of 5.3% this year from 8.4% last year, but would still average close to 3% in 2024.

The projections also suggested that Irish inflation will remain around 3% next year.

Economists have warned that the high price of energy has caused food prices to increase significantly.

On the bright side, the stored wholesale gas could help to keep utility bills in check for the next winter.

According to Reuters, Europe finished the winter with a record amount of gas in storage, leaving much less to be replenished before the start of the next winter heating period.

Stock levels in the EU and the UK amounted to 632 terawatt-hours at the end of March, according to Gas Infrastructure Europe, and the levels were at a record high for the time of year.

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