The “second wave” of energy price increases has peaked! ECB Ryan warns: Eurozone inflation will be higher and more enduring

The Zhitong Finance App learned that the ECB's chief economist Philip Lane (Philip Lane) said that the new round of high energy prices means that inflation in the Eurozone will remain high for longer than the ECB's initial expectations. “We are seeing a second wave of price increases, not only in oil but also in natural gas,” he said in an interview on Tuesday. “We believe that this round of energy price increases will make inflation higher and more durable, and then fall back to our target starting in mid-2027.”

Lane said, “The round of 'second round of energy price rises' we are currently seeing should put upward pressure on food prices, general energy prices including electricity, and overall commodity prices. In contrast, price pressure on services should remain under control.”

After the war in Iran caused energy costs to soar, the ECB implemented the second rate hike since then this month. Since then, officials have begun paving the way for further policy tightening, possibly raising interest rates by another 25 basis points as early as October.

Eurozone inflation is expected to rise to about 4% in the next few months; the ECB's latest forecast shows that the average inflation rate for this year and next year is 3% and 2.5%, respectively, which is significantly higher than the 2% target. Meanwhile, the economy continues to show resilience.

Lane said, “If this fall's impact is proven to be more intense and more lasting, it will drag down the economy.”

“But if the impact is less severe, a number of positive factors should support growth, such as large-scale public spending implemented in parts of Europe,” he said. “We are thinking in particular of Germany's infrastructure and defense investment plans, as well as the EU's 'Next GenerationEU' (NextGenerationEU) program.”

He also emphasized, “Although the focus of artificial intelligence activities is not in Europe, we still have enough companies active in this field, so our economy can also benefit from it.”

“Our benchmark scenario is that as long as the energy shock does not intensify, the European economy should continue to grow at a steady but moderate pace,” he said.