Whenever there is a fossil-fuel price shock, there’s a great
temptation to think that the higher prices are here to stay, that this
is the ‘new normal’. It happened after the great OPEC shocks of the
1970s, and in the run-up to the oil price peak in 2014. All the usual
suspects who benefit from higher prices are at it again now: “prices
are going to stay high” and “we’re in for a decade of high prices”.

It's possible, but we should also consider that there could be a
reversal in gas prices. There’s plenty of fossil fuels in the world to
fry the planet many times over. And markets do usually tend to work.
The recent energy forecasts coming out of the Office for Budget
Responsibility do not model a low-price scenario. But what we have
actually seen this autumn has been remarkable resilience and
adaptation in Europe to the high prices, and to Russians turning off
the gas tap. The market has responded in both supply and demand terms,
and gas prices have come down considerably.

What does this mean going forward? What happens to the economy if the
anticipated continuing high gas prices do not materialise? What
happens to the price caps, the massive interventions, to inflation and
interest rates if and when gas prices fall further?

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