The second wave of energy price increases is looming! European Central Bank’s Lane warns: eurozone inflation will be higher and more persistent

According to Zhihui Finance APP, European Central Bank Chief Economist Philip Lane said that a new round of high energy prices means inflation in the eurozone will remain elevated for longer than the ECB initially expected. "We are witnessing a second wave of price increases, not only in oil but also in natural gas," he said in an interview on Tuesday. "We think this round of energy price hikes will make inflation higher and more persistent, before starting to fall back toward our target from mid-2027."

Lane stated: "This current 'second wave of energy price increases' should exert upward pressure on food prices, on broad energy prices including electricity, and on overall commodity prices. By contrast, price pressures in the service sector should remain under control."

After energy costs surged due to the Iran war, the European Central Bank this month implemented its second interest rate hike since then. Since that time, officials have begun to pave the way for further tightening, with another 25-basis-point hike possible as early as October.

In the coming months, inflation in the eurozone is expected to climb to around 4%; the ECB's latest projections show average inflation rates of 3% this year and 2.5% next year, both significantly above the 2% target. Meanwhile, the economy continues to display resilience.

Lane said: "If this autumn's shocks turn out to be more severe and persistent, it will drag on the economy."

"But if the shocks are less severe, several positive factors should support growth, such as large-scale public spending in some parts of Europe," he said. "We are especially thinking of Germany's infrastructure and defense investment plans, as well as the EU’s NextGenerationEU plan."

He also emphasized: "Although the focus of artificial intelligence activity is not in Europe, we still have enough companies active in the field, so our economy can also benefit."

He said: "Our baseline scenario is that as long as the energy shocks do not worsen, the European economy should continue to grow at a stable but moderate pace."