ECB Chief Economist Sees Eurozone Inflation Hitting 2% Target in Mid-2027

Philip Lane, chief economist at the European Central Bank, stated that soaring oil and gas prices will keep other prices elevated, with eurozone inflation only likely to approach the 2% target rate towards the middle of next year. Lane told a Swiss daily, as quoted by Reuters, that the current second wave of energy price increases should lead to higher and more persistent inflation before it recedes towards the target starting in mid-2027.

The ECB chief noted that so far, from February until the present, there has not been a spill from oil and gas prices to other prices, notably electricity. Lane described this lack of immediate transmission as good news but warned that the ongoing energy price increases are likely to push up costs for food, broader energy categories like electricity, and general goods. He added that pressures on services should remain relatively contained.

Concerns are mounting among eurozone nations as retail fuel prices in the European Union run at all-time highs. Gasoline is up by a weighted average of 29% since February, while diesel is up by as much as 40% on a weighted average basis. The European Central Bank expects diesel prices to peak by October. However, these expectations may prove overly optimistic given the continued tightening of diesel supply and the prospect, described as uncertain, of the United States banning exports of the fuel.

Higher fuel prices pushed the eurozone's energy inflation reading for August to 14.3%. Lane’s comments highlight the persistence of inflationary pressures driven by energy costs, suggesting that the path back to price stability will extend further into 2027 than previously anticipated. The potential for supply disruptions, particularly regarding diesel exports from the United States, adds a layer of uncertainty to the ECB's forecast for the remainder of the year.