Finimize - 🤨 AI cozies up... to coal

What’s going on here?

Data out on Friday showed consumer prices across the eurozone perked up in May, and you can bet the European Central Bank (ECB) didn’t love the timing of that.

What does this mean?

This latest report came in days before the ECB was expected to cut its key interest rate from the current, historic high. See, like most of the world’s central banks, the ECB has been battling against hot inflation with its biggest bazooka: high interest rates. And that’s proved fairly effective. Consumer prices rose by just 2.6% in May from the year before – only two ticks higher than the rises in March and April, and not miles away from the central bank’s 2% target. But now the ECB is looking to put that weaponry away: higher interest rates do a good job of holding down price increases, but they also weigh down economies in the process.

Why should I care?

Zooming in: Kindest cuts.

The past two years haven’t been easy for the eurozone, with high inflation and expensive borrowing rates making consumers and businesses reluctant to spend. Just look at the annual pace of economic growth across the bloc: it came in at just 0.4% in the latest quarter, and the forecasts for the rest of the year aren’t much rosier. So a rate cut from the ECB – its first since 2019 – would likely be welcome news for the region’s economy and its stock market.

The bigger picture: Not running with scissors.

The ECB might have hiked rates aggressively, but it’s not likely to lower them at the same tempo. The central bank will want to take a slow-and-steady approach, not least because of the risk of reigniting that old inflation foe. After all, if Europe cuts its rates and the US Federal Reserve doesn’t, that’ll weaken the euro and strengthen the dollar – making European imports more expensive and pushing consumer prices higher all over again.

What’s going on here?

AI’s eye-watering power needs are forcing the US to cling to the fuel of yesteryear: coal.

What does this mean?

Retirement plans for the country’s aging coal-fired power plants have hit a wrinkle, with concerns about grid reliability and growing electricity demand forcing operators to keep the powerhouses burning. Now, just 54 gigawatts of America’s coal-powered capacity are expected to go offline by the decade’s end – a 40% decrease from last year’s projections. And the strain is only going to get worse: AI bots like ChatGPT use nearly ten times as much electricity to fetch an answer compared to a simple Google search.

Why should I care?

Zooming out: Pipe dreams.

All of that’s a growing headache for the US government, which is aiming for a carbon-free power sector by 2035. Renewable projects are already facing years-long delays due to equipment shortages, infrastructure issues, and regulatory hurdles for grid connections. And a debate over fossil fuels is playing out too, with OPEC and the International Energy Agency (IEA) butting heads. The group of oil-producing countries thinks oil use will continue to rise over the next 20 years, while the IEA predicts it will peak by 2030. And if OPEC is right, the fossil fuel industry will need more investment to keep supply flowing.

The bigger picture: On the bench.

Don’t mistake coal’s retirement delay for a comeback: its use is still set to decline by 4% this year alone. And, sure, coal’s dimmer future might be good news for companies producing cleaner fuels like natural gas or nuclear, but they’ll have to decide which side of the debate they’re on. If they stand with OPEC, they’ll need to carefully balance the green transition with more investments into fossil fuels just to keep the US alive in the AI race.