An extraordinary divergence is opening up in the energy prices between United Statesi ed Europe
The prospect of skyrocketing prices for the gas natural for this winter looks set to lead to a recession in Europe and in United Kingdom. Conversely, the strength of the US economy means that the Federal Reserve will have to keep raising interest rates until it can cause a recession.
The price of gasoline is going down in the United States
When the price of gasoline in the United States surpassed $ 5 a gallon in June, many Americans thought the recession in the United States would come quickly. “High price of gasoline, the same recessionIs part of popular wisdom in the United States. With the reversal of the yield curve and rising unemployment claims, many agreed. Now things look very different. Yes, the yield curve is still inverted, but gasoline dropped to $ 4 a gallonjobless claims stabilized at a low level and the strength of US consumer spending surprised the pessimists.
A series of good news on US inflation, but rates are still set to rise
Also inflation has been the subject of a number of good news, but hope that the Federal Reserve could stop raising rates anytime soon was dispelled by a series of hawkish comments from members of the rate-setting committee. As mentioned, the strong and persistent inflation in wages and rents in the United States means that the Fed’s target of 2% inflation is still out of reach, unless a recession occurs.
Europe can only dream of US energy prices
European motorists would be thrilled to fill up on US prices, which translates to British 90p or just over 1 euro per liter. But we have reason to be much more envious of this winter’s natural gas prices. Currently the price of the gas natural is over 8 times higher in Europe and the UK than in the US.
Of course this has not yet affected European consumers: it is summer and prices are still relatively low. But the extent of the impending disaster is most evident in the UK. The average household’s energy bill started the year with £ 1,277 in annual terms. Starting in October, the price will rise to around £ 3,600 (the exact number we’ll know on Friday) and possibly to around £ 4,200 next January. British households’ annual energy bills would therefore rise by as much as 3,000 pounds in less than 12 months. The government has already planned some cuts, but anyone who becomes prime minister next month will be forced to drastically extend them.
The calm before the storm in the UK
A few weeks of relief await us in the UK. Thanks to changes in national insurance thresholds and cost of living subsidies, real disposable incomes will get a major boost this month. And many consumers still have room to spend their savings – the accumulated liquidity and reduced debt during the pandemic. But it really is the respite before the storm.
The mighty dollar could get even more powerful
It is difficult to escape the conclusion that the economic outlook is better in the United States than in Europe. The mighty dollar could become even more powerful, and while interest rates are set to rise in Europe and the UK, the US certainly needs to lead the way. And the risk assets? In my humble opinion, lincrease in taxie the recession are not enough for a growing stock market.
* Chief Economist Emea of Columbia Threadneedle Investments
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