- I see signals pointing to price pressures in the coming months
- The Middle East situation is fragile with risk of setbacks
- Labour market is resilient, household balance sheets are solid and public investment should support activity
- Uncertainty is elevated despite peace prospects and inflation could stay above 2% for quite some time
- Increase in energy prices is expected to keep inflation well above target into the first half of 2027
- The ECB is to remain attentive to risks on both sides of the outlook
- Energy shock is feeding through to broader inflation
ECB’s Lane warned that inflation risks remain tilted to the upside despite improving geopolitical prospects. Lane said he sees growing signs of price pressures building in the coming months, noting that the recent energy shock is feeding into broader inflation. He warned that higher energy prices are likely to keep headline inflation well above the ECB’s 2% target into the first half of 2027.
While acknowledging that peace prospects in the Middle East have improved, Lane stressed that the situation remains fragile and vulnerable to setbacks, leaving uncertainty elevated. Given this backdrop, he said inflation could remain above target for longer than previously expected.
Lane also pointed to continued resilience in the Eurozone economy. He noted that the labour market remains strong, household balance sheets are healthy, and public investment should continue to support economic activity.
Despite inflation risks, Lane reiterated that the ECB will remain attentive to risks on both sides of the outlook, signalling that policymakers will stay data-dependent as they assess whether additional policy tightening may be needed to ensure inflation returns sustainably to target.
The market is pricing in 28 bps of tightening by year-end with the next hike coming in September at the earliest.
