Soaring oil and gas prices will keep most other prices elevated for longer, with eurozone inflation only likely to approach the target rate of 2% towards the middle of next year, the chief economist of the European Central Bank has said.
“As a result, 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,” Philip Lane told a Swiss daily, as quoted by Reuters.
Lane added that so far, there has not been a “spill” from oil and gas prices to other prices, notably electricity, but such a spill may well manifest later in the year, for example in food prices.
“So far, from February until now, we haven’t [seen a spill], and that’s the good news. However, the second wave of energy price increases that we’re seeing today is likely to put upward pressure on food prices, energy prices more broadly, including electricity, and goods prices in general. By contrast, pressures on services should remain relatively contained,” the top ECB official also said.
Concerns are mounting among eurozone nations, however, because services generally tend to be of secondary concern when the price of gasoline and diesel is rising by double digits. Retail fuel prices in the European Union are running at all-time highs, with gasoline up by a weighted average of 29% since February and diesel up by as much as 40% on a weighted average basis.
The European Central Bank expects diesel prices to peak by October but in light of the continued tightening of diesel supply and the prospect—however uncertain—of the United States banning exports of the fuel, these expectations may prove to be overly optimistic. Higher fuel prices pushed the eurozone’s energy inflation reading for August to 14.3%.
By Irina Slav for Oilprice.com
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