Rabobank Sees Eurozone Inflation Peaking at 4.4% in Early 2027

Rabobank's strategists have revised their eurozone inflation outlook due to increased energy costs. According to their models, headline inflation will reach 4.4% year-on-year in January and February 2027, surpassing previous expectations of 3.1% in 2026 and 3.5% in 2027.

The bank's revised forecast implies a 0.5 percentage point increase in inflation for both 2026 and 2027 compared to their previous projections. Core inflation is also expected to rise, albeit by just 0.1 percentage points, as energy costs feed through directly and indirectly.

Rabobank expects disinflation in core measures to remain sluggish, which would keep the ECB's deposit facility rate near 2.50% until at least 2028. To hedge against this, derivative traders are advised to adjust their portfolios and buy short-term Eurozone inflation-linked swaps covering the remainder of 2026 and 2027.

The bank also suggests positioning for a prolonged period of elevated interest rates, recommending selling Euribor futures or buying payer swaptions to capture the value of rates staying higher than currently priced in. Historically, central banks have maintained restrictive policies longer than anticipated during energy crises.