Eurozone Inflation Won't Reach 2% Until Mid-2027

European Central Bank chief economist Philip Lane forecasts that eurozone inflation will approach its target of 2% only in mid-2027. He attributes this to high oil and gas prices, which are keeping inflation elevated for longer.

Lane warns that a second wave of rising energy prices could make inflation higher and more persistent before it starts declining towards the target from mid-2027. So far, no significant pass-through of higher oil and gas prices to other categories has been observed, but Lane suggests that this could change later in the year.

He also notes that since February, retail fuel prices in the European Union have been at record levels. The weighted average price of gasoline has risen by 29%, while diesel fuel has increased by up to 40%. The ECB expects diesel prices to peak by October, but further cuts in diesel supply and a potential ban on its exports from the United States could make this forecast overly optimistic.