Eurozone Inflation Stays Above Target Until Spring 2027, Tight Policy Ahead

Nordea's economists forecast that Eurozone headline inflation will remain above the European Central Bank's (ECB) target of 2% until at least spring 2027. This assessment is based on recent readings, which have shown slightly weaker energy price increases than projected by the ECB in June. As a result, Nordea anticipates modest downward revisions to the ECB's inflation forecasts for 2026 and 2027.

The bank also expects core inflation to track in line with the ECB's June projections, resulting in no significant changes to its core profile. Core inflation is projected to remain above 2% through the end of 2028. This sustained level of core inflation suggests that the ECB may maintain a hawkish stance on monetary policy, keeping interest rates high or even hiking them further.

The implications for monetary policy are clear: a prolonged period of tight money may be on the horizon. Derivative traders should prepare for this possibility by taking advantage of futures contracts and options markets. Nordea suggests shorting December 2026 Euribor futures to profit from higher interest rates, citing historical data as evidence that core inflation is difficult to cool.