Fossilflation is a permanent risk to the US
Rising energy costs were a major driver of the hotter-than-expected US inflation figures reported yesterday.
Fossil fuels, specifically gasoline and fuel oil, have experienced significant price increases in the United States, contributing to the country's recent inflation. While the overall inflation rate rose by 3.7% over the past 12 months, gasoline prices surged by 34.2%, and fuel oil prices surged by 74.2%. This dramatic increase is primarily attributed to the ongoing war in Iran and the broader volatility of global fossil fuel prices, a phenomenon dubbed "fossilflation" by European Central Bank official Isabel Schnabel.
Despite domestic drilling efforts, US consumers remain vulnerable to global price fluctuations, as the transition to non-fossil energy sources still faces challenges. These challenges include the higher costs of adopting new technologies in heavy industries and the rising expenses of critical minerals required for clean energy production. Furthermore, if the Federal Reserve opts to raise interest rates in an effort to curb inflation, this could negatively impact capital-intensive renewables.
However, the long-term benefits of shifting away from fossil fuels are clear. Renewable energy sources, while initially expensive, offer predictably priced energy that is less susceptible to geopolitical turmoil. A world with stable, predictable energy prices would significantly reduce the link between inflation and geopolitical events, providing greater economic stability.
Written by urgent.news from Semafor's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
