European Central Bank (ECB) Chief Economist Philip Lane has indicated that recent ‘upside surprises’ in Euro zone inflation are prompting a reassessment of the bank’s expectations for a dip early in the new year. Inflation across the 20 nations sharing the euro has largely remained around the ECB’s 2% target throughout the year. However, recent data indicates that some measures of price growth have exceeded forecasts in the past few months.
Lane acknowledged the ongoing risk that inflation, which previously surged in 2021-22 before receding to the ECB’s target, could again surpass central bank projections. ECB projections from September estimated inflation at 2.1% for the current year, followed by 1.7% in 2026 and 1.9% in 2027. The next ECB meeting, scheduled for December 18, will see Lane present updated forecasts, including projections for 2028. It is widely anticipated that the ECB will maintain its policy rate at 2% during this meeting.
Lane highlighted that previous projections anticipated inflation falling below the target due to low energy costs, particularly in early 2025. Recent data, however, has shown movement in the opposite direction. ECB President Christine Lagarde later commented that inflation is expected to remain around 2% in the coming months, with underlying price growth remaining consistent with that level. Headline inflation saw a slight increase to 2.2% last month, marginally above expectations, driven by accelerated prices in the services sector.
In October, underlying inflation also came in slightly higher than anticipated. Lane reiterated the ECB’s stance of avoiding reactions to short-term deviations expected to be temporary.
