Eurozone: Energy shock reshapes outlook – Rabobank

Rabobank analysts Bas van Geffen and Elwin de Groot reveal that soaring oil and natural gas prices will significantly impact the Eurozone's inflation outlook. Inflation is anticipated to peak at 4.4% year-over-year in early 2027, with core inflation only slightly higher. This revision leads to a 0.5 percentage point increase in headline inflation for 2026 and 2027.

The analysts believe that higher energy prices and potential supply chain pressures due to the Middle East conflict are the main drivers. If economic activity remains robust and energy inflation stays elevated, workers might demand higher wages to counteract reduced purchasing power. However, the analysts maintain that core inflation will remain subdued as it eases, and the European Central Bank will likely maintain near-2.50% deposit rate until at least 2028.