Nomura’s Senior European Economist Andrzej Szczepaniak assesses how recent moves in crude Oil, Natural Gas and EUR/USD following the US/Israel conflict with Iran could affect euro area HICP and ECB expectations. He notes that current Oil and Gas price gains versus the ECB’s December 2025 assumptions may only marginally lift rate hike pricing into 2026–2027, leaving policy reaction limited for now.

Inflation impact and rate expectations

"For the ECB, the focus will be on how pronounced and persistent recent crude oil and natural gas price moves are, as well as how they will affect euro area HICP inflation."

"However, it’s important to take this in the context of where the ECB had assumed crude oil and natural gas prices in their December 2025 forecasts, and also the extent to which the fall in EUR/USD, albeit marginal, will amplify these inflationary pressures. "

"Markets are likely to marginally raise expectations for rate hikes by December 2026 and December 2027, without necessarily fully pricing any additional hikes (i.e., the cumulative change in pricing by Dec 2027 will be meaningfully less than 25bp)."

"The rise in 1y HICPxt inflation pricing, rising to 1.97% from 1.80%, and 2y HICPxt inflation pricing, rising to 1.91% from 1.77%, suggests markets believe the rise in oil prices will be contained and also maybe that the conflict will to some extent be short-lived."

"Ultimately, we believe recent moves are contained enough so far to ensure the ECB does not do anything reactionarry in the near-term – recall, the ECB had forecast HICP inflation would undershoot its target from Q3 2026 to Q4 2027."

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