Eurozone: Energy price spike means “higher for longer” inflation

Persistently high energy prices will cause eurozone inflation to be higher for longer than we previously anticipated. Our new forecast envisions inflation averaging 3.9% in 2022, compared to our earlier 2.5% estimate. This would mark the highest full-year inflation rate in the eurozone’s history.

What you will learn:

• Half of the revision comes from our new projection for oil and gas prices, which we now expect to remain at higher levels throughout 2022.
• The other half comes via higher food prices, which are rising strongly on mounting input costs, and by higher core inflation as well.
• This means eurozone inflation will remain above the ECB’s 2% target for more than a year, which partly explains the central bank’s recent hawkish shift and our new forecast of two rate hikes in late 2022 and early 2023.