ECB’s Kazimir sounds alarm on surging gas and power prices as inflation risks mount

Peter Kazimir, Governor of the National Bank of Slovakia and a voting member of the ECB Governing Council, has shifted his inflation radar away from oil and toward something potentially more painful for European households: natural gas and electricity.

In a blog post published September 14, Kazimir laid out why the ECB’s mood on prices has darkened. Natural gas is trading at four-year highs, EU storage levels are well below historical norms, and the knock-on effects for heating bills, power costs, and food prices haven’t fully materialized yet. For a central bank that just hiked rates for the second time this year, the timing is uncomfortable.

The gas problem, explained

Europe’s natural gas predicament isn’t new, but the latest chapter has a familiar villain: geopolitics. Kazimir pointed to ongoing tensions related to the Iran conflict as a driver of volatile market conditions that delayed summer storage-filling campaigns across the continent. The result is a storage deficit heading into the colder months, precisely when demand spikes.

“My attention is now focused less on oil and fuel prices, but increasingly on gas and electricity prices.”

The ripple effects run deep. Natural gas prices feed directly into electricity generation costs across Europe, where gas-fired plants still set the marginal price in many wholesale markets. Higher electricity costs then cascade into manufacturing, food processing, cold storage, and essentially any business that keeps the lights on.

Rate hikes and the inflation tilt

The ECB raised its key policy rate to 2.5% at its September 10-11 meeting, up from 2.25%. That marked the second increase of 2026, a trajectory that would have seemed unlikely a year ago when markets were still pricing in an extended easing cycle.

Kazimir described inflation risks as “clearly tilted to the upside,” a phrase central bankers don’t use casually. It signals that the Governing Council sees a greater probability of inflation surprising higher than lower in the coming quarters.

Markets appear to agree, or at least they’re hedging their bets. Pricing in interest rate futures suggests roughly a 60% probability of another hike when the ECB meets on October 29. If that materializes, it would bring the policy rate to 2.75%.

Kazimir also flagged food inflation as a growing concern. Rising energy costs feed into agricultural production, transportation, and processing. When those input costs climb, they eventually show up in supermarket aisles, and consumers notice food prices faster than almost any other category.

What this means for markets

The agricultural sector deserves particular attention. Fertilizer production is energy-intensive, and natural gas is a key feedstock for nitrogen-based fertilizers. Four-year highs in gas prices translate to elevated input costs for farmers, which flow through to food processors and retailers. Kazimir’s warning about food inflation isn’t speculative; it’s a supply-chain reality that takes quarters to fully manifest in consumer price indices.

Consumer discretionary stocks face a double squeeze: tighter monetary policy raises the cost of credit, while energy-driven inflation erodes purchasing power. European households spending more on heating and groceries have less to spend on everything else.

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