Key facts
- Eurozone inflation is expected to persist until mid-2027, according to ECB Chief Economist Philip Lane.
- Lane anticipates a second wave of energy price increases will lead to higher and more persistent inflation.
- So far, there has not been a significant spillover from oil and gas prices to other prices like electricity.
- Upward pressure on food, electricity, and general goods prices is anticipated later this year.
- Services inflation is expected to remain relatively contained.
- Retail fuel prices in the EU are at all-time highs, with gasoline up 29% and diesel up 40% since February.
Soaring oil and gas prices are expected to prolong Europe's inflation fight well into 2027, according to Philip Lane, chief economist of the European Central Bank. Lane stated that the current wave of energy price increases is likely to keep other prices elevated for longer, with eurozone inflation only projected to approach the ECB's 2% target rate around mid-2027.
While Lane noted that a direct spillover from oil and gas prices to other sectors, such as electricity, has not yet been observed, he warned that this could manifest later in the year, potentially impacting food and general goods prices. Pressures on services, however, are expected to remain relatively contained.
These concerns come as retail fuel prices in the European Union have reached record highs. Since February, gasoline prices have risen by a weighted average of 29%, while diesel prices have increased by as much as 40% on a weighted average basis. The eurozone's energy inflation reading for August stood at 14.3%.
The European Central Bank had previously anticipated diesel prices to peak in October, but Lane suggested these expectations might be overly optimistic given the continued tightening of diesel supply and potential export restrictions from the United States.