Euro zone inflation may stay high until 2027, ECB's Lane says

Lane acknowledged that high inflation and expensive energy prices are expected to dampen economic activity. However, he noted that a robust labor market and significant investments in artificial intelligence could provide a buffer. Additionally, increased government spending on defense and infrastructure is anticipated to support public investment, further cushioning the economic impact.

The ECB recently raised interest rates to curb the risk of higher energy prices influencing long-term inflation expectations. Financial markets are pricing in at least one more rate hike later this year, although the probability of a July increase is low, with a December hike fully priced in. Charts accompanying Lane's speech suggested that falling oil prices place the commodity closer to the bank's 'baseline' and 'milder' scenarios, potentially reducing the urgency for immediate further rate hikes.

ECB policymaker Peter Kazimir stated on Tuesday that the central bank still has work to do and the direction is clear, emphasizing that the June rate hike decision has positioned the bank to react when necessary. He added that upcoming data, including June inflation figures, will be crucial for monitoring any signs of secondary effects.