Washington and Ottawa ignore the contribution of energy prices to global inflation
They do so at their peril
At the outset of 2022, economists projected that energy costs could rise to 13% of global GDP, up from a more typical 4% which is the average level that prevailed for decades from 1900 to 2020 and 30% higher than 2018. Lower fossil fuel prices later in 2022 averted that degree of increase somewhat, but when energy costs rise threefold as a percentage of GDP, inflation is inherent and inescapable.
Those figures are all for primary energy and exclude the markup on energy throughout world ecoomies. Just looking at primary energy (oil and gas at the wellhead, coal at the mine gate) the inflationary effect is marked and severe.
Source: Bloomberg reporting of data from Thunder Said Energy
It is no coincidence that the very high inflation of the late 1970’s and early 1980’s came at a time of rapidly rising energy costs. Economists can preach about monetary and fiscal policy as factors contributing to or curbing inflation and they will be correct, but few speak about the importance of controlling energy costs to control inflation. Today, Western leaders do just the opposite.
Those leaders preach the gospel of “climate change” and make CO2 emissions (which are demonstrably harmless) a boogeyman to keep voters looking to them to “save the planet” which they cannot do since the planet is in no danger and restraining fossil fuel use won’t save the planet from anything. In fact, curbing fossil fuel usage will punish billions of people living in areas where cheap and reliable energy shortages impede their ability to develop their economies and escape pervasive poverty.
The pretense that CO2 is harmful has seen trillions of dollars squandered with only one result - higher energy prices. Europe’s attack on fossil fuels and pretense that so-called “renewables” can provide competitively prices reliable energy has seen energy inflation in the European Union rise to double digits and stay there since 2020.
Blame the war in Ukraine, blame monetary policy, blame fiscal policy, blame income inequality, blame racism, blame misogyny, blame anti-Semitism, blame homophobia or make up some other leftist excuse for pretty well all the ills that confront mankind, the high inflation in Europe (still in double digit territory) is caused by climate and energy policies and every other excuse is irrelevant or a rounding error.
It is laughable to blame Europe’s energy prices on the Ukraine war since Ukraine has the lowest energy prices on the continent.
You can correlate the energy inflation with climate policies, with Germany as the poster boy. The more left wing the government, the more climate nonsense is enacted and the more the citizenry suffer higher energy costs, which are passed through to consumers in every area of the economy. Electric power generation, home heating, gasoline and diesel fuel, petrochemicals, asphalt, synthetic fabrics, trucking, farming, and industry all require energy and all pass on their energy costs to consumers which manifests itself in higher inflation.
The Economist recently published an article claiming that high energy prices killed more Europeans than COVID-19. COVID-19 was a virus caused pandemic not a policy choice. High energy costs are a policy choice. The largest undeveloped oil & gas reserves in Europe lie under the United Kingdom and the Netherlands but they choose not to develop them based on climate fears.
Source: The Economist
The troublesome inflation is unlikely to be a flash in the pan. A recession will provide some relief at the expense of high unemployment and widespread economic pain but in the ensuing recovery, the shortage of fossil fuels caused by policy choices will be severe and the next round of inflation much worse, as I see it. A cold winter will bring Europe to its knees, if the coming winter is a reversal of the warm winter that saved Europe from economic collapse in the past few months.
Only United States and Canada have the ability to rapidly increase fossil fuel output to ease the shortage and stave off the next cycle of high inflation, but under Biden in Washington and Trudeau in Ottawa, they not only will not enact policies to expand energy production but also will double down on their nonsensical climate change crap. That is the state of politics in 2023.
Buckle up kiddies. It is going to be an interesting ride.