Eurozone inflation set to remain elevated through 2027, ABN AMRO forecasts

Eurozone inflation is set to rise further over the coming months and remain elevated through 2027, according to ABN AMRO, as food and goods pipeline pressures partly counter easing energy inflation. The bank examines how overlapping supply-side shocks involving energy, food and supply bottlenecks are driving inflation higher across the Eurozone. For the European Central Bank, it identifies wage growth and inflation expectations as key variables.

Supply shocks drive a fresh inflation wave

"As a result, eurozone inflation has been trending up in recent months and reached 4% in October. These shocks affect inflation through different channels and at different speeds."

"The ultimate persistence of the inflation impulse will depend on whether it raises inflation expectations and wage demands, generating second-round effects."

"We expect eurozone inflation to pick up further over the coming months and to stay elevated, as higher food inflation and pipeline pressures partly offset easing energy inflation in 2027."

"Ultimately, we expect the combination of looser labour market conditions and high interest rates to keep inflation expectations well anchored, and this should prevent a repeat of the persistent inflation dynamics seen in 2022-23."

"Another inflation wave is coming, but it should have a shorter tail."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)