Rising oil and gas prices drive inflation, ECB hikes threaten renewable financing

New Economics Foundation researchers calculated that a 10% increase in oil and gas prices pushes overall inflation up by 0.36 percentage points, and a 50% surge could add an extra 1.8 points. Oil prices have climbed 60% compared with last year, while Dutch benchmark gas is 166% higher, though price-hedging and fiscal measures temper the impact on households, with only a fifth expected to be felt within a year based on Bank of England data.

In a sample of 13 countries, fossil-fuel and energy costs are the leading inflation risk in all but two, with the Czech Republic, Bulgaria and Croatia faring worst and Sweden and Austria better. Researcher Maike Schmidt linked current high inflation to historic fossil-fuel shocks, from the 1970s OPEC embargo to the Ukraine war. The European Central Bank’s latest rate hike aims to halt inflation spread but raises borrowing costs for renewables, which rely heavily on debt financing, potentially creating a carbon lock-in where reliance on oil and gas persists. The report warns that tighter monetary policy could undermine the transition to cleaner energy sources.