ECB’s Lane warns inflation won’t ease until mid-2027

European Central Bank Chief Economist Philip Lane said a second wave of energy price increases will keep eurozone inflation elevated longer than anticipated, with prices not falling back toward the ECB's 2% target until mid-2027. Lane made the remarks in an interview with Swiss daily Le Temps, conducted on September 15 and published on Tuesday.ecb.europa+1

"We are now seeing a second wave of price increases, not just for oil but also for gas," Lane said. "We believe this second wave of energy price increases should lead to higher and more persistent inflation, before it recedes towards our target starting in mid-2027."reuters+1

Energy Shock Proves More Persistent

Lane explained that after an initial wave of energy price increases in March and April, optimism briefly followed the United States-Iran memorandum of understanding signed on June 17. But geopolitical risks have risen again, and the temporary recovery in energy markets over the summer has given way to renewed pressure.econostream-media+1

The second wave is expected to push up prices across food, electricity, and goods more broadly, though Lane noted that services prices have so far remained contained. He cautioned that "if a stronger and more persistent shock occurs this fall, it will weigh on the economy," while adding that under the ECB's baseline scenario the eurozone economy should continue growing at a "steady but modest pace" provided conditions do not deteriorate further.ecb.europa+1

Rate Hikes and Rising Inflation

Lane's comments came less than two weeks after the ECB raised its three key interest rates by 25 basis points on September 10, lifting the deposit facility rate to 2.50%. It was the central bank's second rate hike of 2026, following a June increase, as policymakers grapple with energy-driven price pressures and the consequences of armed conflict in the Middle East.ecb.europa+3

Eurozone consumer price inflation reached 3.2% in August, up from 2.9% in July, according to Eurostat Euronext N.V. data published on September 17. Energy inflation surged to 14.3%, its highest level since January 2023. Markets are now pricing in a 46% chance of another 25-basis-point ECB rate hike at the October 29 meeting.barchart+2

The warning from Lane added to a hawkish tone across central banks on Tuesday, as Boston Fed President Susan Collins separately said she saw an "increased likelihood" of scenarios in which U.S. inflation remains "notably above 2%". The EUR/USD pair fell to a seven-week low, while gold prices declined amid the prospect of further monetary tightening on both sides of the Atlantic.barchart