The increase in natural gas prices is affecting the inflation rate in the United States, something that has not occurred for about twelve years.

Rising inflation is forcing the Federal Reserve to consider reducing the continued support so far given to the economy. Meanwhile the energy crisis is making global investors nervous about economic growth and high prices.

Europe is bracing for the harsh winter ahead due to big jumps reflecting energy costs.

Europe cares

The cost of wholesale natural gas has skyrocketed to record highs in the UK, France, Spain, Germany and Italy. Household and business bills have already skyrocketed, and could rise further as the cold approaches and more fuel is needed for electricity generation and heating systems.

"We have seen huge price increases," said Dimitri Vergne, head of the energy team at the European Consumers Organization. "It is worrying for the winter, when gas consumption will necessarily increase."

There is a complex web of factors at play. A cold spring depleted natural gas inventories.

Rebuilding stocks has been difficult, thanks to an unexpected jump in demand as the economy recovers from COVID-19 and a growing appetite for liquefied natural gas in China. Russia is also supplying less natural gas to the market than before the pandemic.

China and its new political strategy

The former chairman of Morgan Stanley Asia is concerned that the impact of rising energy prices on China's complicated supply chain is the tipping point.

"We have had problems in the supply chain for the last year and a half. They have affected many raw materials and the production of semiconductors; and now there are shortages related to energy and electricity in China," he told the program "Trading Nation "from 'CNBC'.

Roache began raising the alarm about China's supply chain problems last year, as the country was trying to cope with the Covid-19 shutdowns. "We were one step away from a failure in the supply chain causing stagflation. And that seems to be happening, unfortunately," Roach said.

Stagflation refers to pressures that push prices up during periods of slower growth.

"It is concerning for the general economic outlook and raises serious questions about the wisdom of the policies of central banks, especially that of the Federal Reserve," Roach said.

The economist has been critical of the Fed's monetary policy, and has questioned the need for excess stimulus amid a scenario of strong long-term inflation.

"The likelihood of (supply chain) bottlenecks continuing to move from one area to another, strikingly reminiscent of what we saw in the early 1970s, suggests that inflation will remain at these high levels. for longer than we think. The Federal Reserve is already starting to backtrack on its recent view that these pressures will fade quickly, "Roach said.

If stagflation materializes, he says, it could coincide with Christmas spending season. "The impact will come mainly through the price level. We have to examine the potential risks much more carefully," the economist said.

His latest prediction comes two months after he warned that the United States and China were in the early stages of a cold war.

According to Roach, the relationship remains contentious, as China's "common prosperity" drive seeks to level wealth. "The real risk is this potential change in political strategy," said Roach, whose opinion is highly respected in the US.

Economist Stephen Roach has issued a big warning: The United States may be on a collision course with inflation similar to that of the 1970s, when a major economic crisis was triggered by the 1973 oil crisis.