Lane Sees Energy Shock Driving Higher Inflation into 2027

European Central Bank (ECB) Chief Economist Philip Lane has expressed concerns about the impact of an energy shock on inflation in the eurozone. According to Lane, the energy shock, which is driving up oil and gas prices, will likely last longer than anticipated by the ECB in March.

Lane stated that this second wave of energy price increases will lead to higher and more persistent inflation, but only before it eventually recedes towards the target starting from mid-2027. He also noted that while there have been no spillover effects on other prices, such as electricity or services, so far, the current energy price increases are likely to put upward pressure on food prices, energy prices broadly, including electricity, and goods prices in general.

Lane's comments come at a time when geopolitical risks are once again elevated. The ECB had previously anticipated that the energy shock would be short-lived, but Lane now believes it will have a more lasting impact on inflation.