ECB Sees Energy Shock Keeping Eurozone Inflation High Into 2027

European Central Bank chief economist Philip Lane says the latest surge in oil and gas prices will keep eurozone inflation elevated into 2027. He expects inflation to start receding toward the ECB’s 2% target from mid-next year.

Lane told a Swiss newspaper that energy costs have not yet spread widely to other prices. But he warned that the latest increases may push up food, electricity and goods prices, while service-price pressures should remain more contained.

The ECB’s September projections put annual inflation at 3% in 2026 and 2.5% in 2027, up from its earlier 2.3% forecast for next year. The bank expects inflation to peak at 3.6% in the fourth quarter of 2026, then fall to 2.5% in the second quarter of 2027.

Energy prices are central to that outlook. The ECB expects gas prices in 2026 to average €51 per megawatt-hour, 20% higher than assumed in June; wholesale electricity prices are now projected 50% higher for the third quarter.

The pressure comes as Europe tries to refill gas storage ahead of winter. The European Union’s storage sites were 65% full at the start of September, a low level for that time of year, according to Le Monde. Tight supplies could leave buyers competing for gas if disruptions persist.

The outlook is not one-way. The ECB’s baseline assumes energy prices will ease, and its staff expects energy inflation to turn negative in the second half of 2027. If prices stay higher for longer, its adverse scenario puts inflation at 3.2% next year.

Interest rates are another pressure point for households and companies. The ECB raised its benchmark rate by a quarter point to 2.5% in September, and President Christine Lagarde said future decisions would depend on incoming data. Investors will watch energy prices and whether their increases reach food and other goods.