Rabobank sees eurozone inflation hitting 4.4% in early 2027

Rabobank has sharply raised its eurozone inflation forecasts, projecting headline inflation will peak at 4.4% year-on-year in January and February 2027 as surging oil and natural gas prices ripple through the bloc's economy, according to an analysis published this week by the Dutch bank's strategists.fxstreet

The revised outlook from strategists Bas van Geffen and Elwin de Groot marks a stark departure from the European Central Bank's own September projections, which see inflation averaging 3.0% in 2026 and easing to 2.1% by 2028. Rabobank now forecasts average inflation of 3.1% in 2026 and 3.5% in 2027, driven by energy costs that are adding roughly 0.5 percentage points to headline inflation in each year.ecb.europa+2

Energy Shock Reshapes the Outlook

The eurozone has been grappling with a renewed energy price shock tied to the conflict in the Middle East. Energy inflation in the euro area accelerated to 14.3% in August from 10.3% in July, according to Eurostat, pushing headline inflation to 3.3% — the highest since September 2024. Rabobank's strategists warned that if the war leads to "somewhat higher supply chain pressures in coming months," the effects could broaden beyond energy.cnbc+1

Despite the headline surge, core inflation remains more contained. Rabobank projects only a 0.1 percentage point increase in core inflation, while Eurostat data showed core inflation actually dipped to 2.4% in August from 2.5% in July. Still, the bank flagged a wage risk: "With inflation likely to peak around 4.5% early next year, that risk is non-negligible," the strategists wrote, noting that workers could demand higher pay to offset lost purchasing power.fxstreet+1

Central Banks Tighten as Markets Price in More Hikes

The ECB raised its deposit rate by 25 basis points to 2.50% on September 10, its second hike this year, citing persistent energy-driven price pressures from the Middle East conflict. Markets are pricing in further tightening, with a Reuters poll in early September suggesting the September hike could be the ECB's last, though BBVA Research Banco Bilbao Vizcaya Argentaria, S.A. ↘ 2.02% now expects another hike to 2.75% by year-end. According to BNN Bloomberg, markets are pricing in a deposit rate above 3% by 2027.bnnbloomberg+4

Rabobank, however, expects the deposit rate to remain near 2.50% for an extended period, with cuts below that level unlikely before 2028. "We do believe that core inflation will be sluggish on the way down," the strategists wrote, suggesting the ECB will hold rates at the "upper end of the neutral range for some time".fxstreet

The eurozone's predicament mirrors a broader global tightening cycle. The U.S. Federal Reserve also raised rates this week, while the Bank of Japan hiked to a 31-year high and the Reserve Bank of Australia has raised rates three times this year.bnnbloomberg