ECB Executive Board Member Philip Lane says a second wave of oil and gas price increases is stretching Europe's energy shock further than expected, pushing inflation back toward target only from mid-2027. He says pass-through into electricity and services prices has stayed limited so far, but a longer, larger shock this autumn would also weigh on eurozone growth.
Energy shock pushes inflation target further out
Philip Lane, an ECB Executive Board member, said a second wave of oil and gas price increases is extending Europe's energy shock and keeping inflation elevated for longer than the ECB expected earlier this year. In an interview conducted on September 15 and published Tuesday, Lane said the March-April surge had initially been expected to peak around June before easing in the second half. Instead, geopolitical risks have risen again.
According to ActionForex: "We expect the energy shock to last longer than we had anticipated in March", and he added that inflation is now likely to remain higher for longer before falling back toward the ECB's target from mid-2027 onwards.
Pass-through into prices remains limited so far
Broader pass-through remains limited so far. Lane said the ECB had not yet seen a significant spillover from the energy shock into electricity or services prices between February and now, calling that a positive sign. But the renewed increase in energy costs changes the forward-looking risk.
Lane expects upward pressure on food, electricity and goods prices, while pressure on services should remain contained. The distinction matters: the ECB is not describing an already broad-based inflation acceleration, but a longer-lasting energy shock that increases the likelihood of wider price effects over coming months.
Growth outlook hinges on how severe the shock gets
Lane said the euro-area economy should continue growing at a steady but modest pace as long as the energy shock does not become more severe, with German fiscal spending, Next Generation EU funds and some AI-related investment providing support. However, if the shock turns out to be larger and more persistent this autumn, that would hold back the economy.
The ECB's baseline assumes some improvement in the geopolitical situation later this year, but Lane stressed that this reflects oil and gas market pricing rather than an independent political forecast, warning that there is a lot of uncertainty around that baseline.
Source: ActionForex
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