A study by the Brussels-based New Economics Foundation (NEF) says rising energy prices are the largest inflation risk for Germany and, in its analysis, for almost all European countries.
The researchers estimated that a 10% increase in both oil and gas prices could raise total inflation in Germany by up to 0.22 percentage points. They also modelled a 50% rise in oil and gas prices, finding that such a shock could add up to 1.8 percentage points to inflation in Europe in the following year.
NEF said higher fossil-fuel prices remain the main inflation threat across the continent and argued that expanding domestic wind and solar power is important both to avert the climate crisis and to limit price increases. Maike Schmidt of NEF said fossil-fuel prices had triggered most major high-inflation episodes in Europe over the past 50 years, from the OPEC embargo in the 1970s to Russia's invasion of Ukraine and attacks by the United States and Israel on Iran.
The study added that Europe is insufficiently prepared for such shocks because the relatively high interest rates set by the European Central Bank make renewable-energy infrastructure expensive to finance. The researchers recommended that the ECB introduce a separate, lower rate for green investments such as wind and solar power. They said that would allow the ECB to raise its policy rate without making borrowing for green projects so costly that they become uneconomic.
