Eurozone: Is inflation set to remain elevated through 2027? - ABN AMRO

Eurozone inflation faces further upside pressure and is expected to remain elevated through 2027, according to ABN AMRO. The bank examines how overlapping supply-side shocks from energy, food and supply bottlenecks are driving inflation higher. It forecasts a further rise over the coming months, with food and goods pipeline pressures partly offsetting the easing of energy inflation. For the European Central Bank, wage growth and inflation expectations remain key variables, the bank highlights.

How persistent will supply-driven inflation prove?

"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.)