ECB Expects Energy Crisis to Last Longer, Impacting Inflation and Economy

Philip R. Lane, an executive board member of the European Central Bank (ECB), discussed the ongoing energy crisis in an interview with Le Temps. The crisis has led to two waves of price increases, first in March and April, and again now.

The initial wave of price increases was followed by optimism after the US and Iran signed a Memorandum of Understanding on June 17 to bring the conflict to an end. However, this optimism was short-lived as the war continued, leading to a second wave of price increases for oil and gas.

Lane stated that the ECB expects the energy shock to last longer than initially anticipated, with inflation likely to be higher for longer before falling back towards their target from mid-2027 onwards. He noted that so far, there has been no impact on prices of other goods, such as electricity or services.

Lane expressed cautious optimism about the economy's resilience, citing government spending in parts of Europe, including Germany's infrastructure and defence package and the Next Generation EU programme. However, he warned that if the energy shock becomes more severe, it will hold back the economy.