European gas prices remain historically elevated, but have fallen to an 18-month low, and storage levels are tracking well above seasonal averages after a concerted push to lower usage and diversify supply relationships beyond Russia. Although Germany’s decision to phase out nuclear reactors has left the bloc’s largest economy vulnerable to volatility in global fossil fuel prices, new liquified natural gas terminals and storage facilities should limit the likelihood of another energy shock in the winter months. This should reduce pressure on headline inflation, lessen the need for another round of aggressive monetary tightening, and improve underlying consumer confidence levels – helping to put a floor under the euro.

Gas storage levels, %