ECB Warns Energy Shock Prolonging Inflation Until Mid-2027

ECB Executive Board Member Philip R. Lane has stated that the energy shock in Europe is lasting longer than initially anticipated, with a second wave of oil and gas price increases contributing to this prolonged effect.

Lane noted that the March-April surge in energy costs was expected to peak around June, but geopolitical risks have risen again, prolonging the impact on inflation. As a result, Lane expects inflation to remain higher for longer before falling back toward the ECB's target from mid-2027 onwards.

Despite the limited pass-through into electricity and services prices so far, Lane warned that renewed energy pressure will likely feed into food, electricity, and goods prices, while services inflation remains contained. The ECB is not describing an already broad-based inflation acceleration but a longer-lasting energy shock that increases the likelihood of wider price effects over coming months.

Lane also expressed concerns about the potential impact on the euro-area economy, stating that it will continue growing at a steady but modest pace as long as the energy shock does not become more severe. However, if the shock worsens, this could hold back the economy. Lane attributed some support to German fiscal spending, Next Generation EU funds, and AI-related investment.