ECB flags high energy prices this summer and inflation above target through mid-2027

Brussels – Following economic growth, inflation is now rising. Higher energy prices are being felt everywhere, and the European Central Bank, in its recently published economic bulletin, attempts to take stock of a situation that remains volatile due to ongoing wars and tensions, but whose contours are nevertheless clear. “The increase in energy prices will lift inflation further over the summer and keep it well above target into the first half of 2027. It will also have an impact on food, goods and services inflation,” the ECB’s economists warned.

Further increases are therefore expected, partly due to the summer period, which will drive up energy consumption – and consequently demand – as air-conditioning systems are switched on. Consequently, “inflation should then return to target in the second half of 2027, supported by falling energy prices and slower increases in other prices.” Provided that the peace between Iran and the United States holds up, as “the war in the Middle East remains a major source of uncertainty.” Among the main sources, but not the only one: “Extreme weather events, and the unfolding climate and nature crises more broadly, could drive up food prices by more than expected,” the European Central Bank added. 

So, in the background, the risk of a food crisis – which the Eurotower itself had already warned of for next year – is now confirmed, as acknowledged by ECB President Christine Lagarde. This is now confirmed in the bulletin, which states in black and white that the inflation forecasts in the baseline scenario for 2026 and 2027 have been revised upwards (3 per cent in 2026 and 2.3 per cent in 2027) due to the “higher path for energy prices, which, to some extent, is expected to feed into food, goods and services inflation.” 

The spiral linking high energy prices and high inflation will also affect the behaviour of households and businesses. “Higher energy costs and lower confidence will dent private investment in the short run, but it should be underpinned by firms investing in new digital technologies,” the ECB notes. At the same time, higher public spending on defence and infrastructure “should continue to support public investment. These factors are expected to provide some cushioning against the fallout from the war” in Iran.