The European Central Bank (ECB) has just raised its deposit rate to 4%, a record high since its creation, and has stopped buying up sovereign debt (the "printing press"), with the stated aim of bringing inflation down. Well, it's about time. Zero interest rates and the uncontrolled expansion of its balance sheet largely explain the price slippage we're currently experiencing. Unfortunately, this will probably have little effect, as the price of oil is rising slowly but surely.

This rise in the price of oil is not linked to cyclical factors; it is planned by Saudi Arabia and Russia, the world's second and third largest producers (the first being the United States). After an initial announcement in July, these two countries confirmed at the beginning of September that they would be extending their production cuts until the end of the year, and they are being followed in this policy by the other OPEC members. As a result, on September 5, the price of a barrel of Brent crude topped the symbolic $90 mark for the first time since mid-November 2022, at a time when the energy crisis was raging. This represents an increase of 30% since June, with $100 in sight... 

The ECB's efforts appear to be largely in vain: in France, inflation is back on the rise due to a "clear rebound in energy prices over the year", explains l’INSEE  in its August price index (+1.0% over the month, +4.9% over one year after +4.3% in July). The ECB's forecast of inflation returning to 2.1% in 2025 is based on a barrel of oil at $78, a far too optimistic forecast for the Natixis research department, which predicts 3.6% instead (and which does not take into account the knock-on effect of oil on other energy sources, see below).

Our room to manoeuvre is extremely limited, and the clouds are gathering: the rise in oil prices will be accompanied by a rise in gas prices, as they are strongly correlated (and even more so if Europe has a harsh winter), and then in electricity prices, as the European market indexes its price to that of the last gas-fired power station commissioned. The "energy transition" also structurally increases the cost of energy (overtaxed fossil fuels, subsidized wind turbines). We all know what happens next: more expensive energy spreads throughout the economy, inevitably leading to a general rise in prices, particularly for fuel, heating and then food (which is very energy-intensive, with fertilizers, transport and the cold chain), which in turn erodes household purchasing power, with the risk of recession looming. Stagflation (stagnation + inflation) then threatens.

This is the situation, and the coming months will be crucial: will Saudi Arabia and Russia persist in their determination to curb oil supply? Does the US government, which is entering an election year, have the leverage it needs to thwart this policy? Will the European winter be harsh, which would also put pressure on gas prices? The ECB is making efforts, but they're coming too late, as inflation is now mainly driven by energy, an area in which Europe has very few cards to play...

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