Eurozone Inflation Projected to Surge Past ECB Target

(MENAFN) Eurozone inflation is set to surge well above the European Central Bank's target this year before gradually easing back, according to a closely watched ECB survey of professional forecasters released Monday — as the Iran war reshapes the bloc's economic outlook.

Forecasters now project euro area inflation will average 2.7% in 2026, a dramatic upward revision from the 1.8% penciled in just one survey round earlier. Price growth is then expected to cool to 2.1% in 2027 before settling at the ECB's 2% benchmark in 2028.

Growth expectations were trimmed slightly, with respondents citing mounting uncertainty over the Middle East conflict's economic fallout and rising energy costs bearing down on the 20-nation currency bloc.

A parallel ECB corporate phone survey cautioned that the broader pass-through from higher energy costs linked to the Iran war "might be more gradual than in the past," though it flagged that prolonged conflict could intensify price pressures considerably.

The Rate Question
The ECB held borrowing costs steady last week but left the door open to a hike at its next meeting should inflation risks persist. Bundesbank President Joachim Nagel sharpened that signal Friday, indicating a rate increase would be warranted unless the inflation and growth outlook improves significantly.

Not all policymakers share that urgency. Greek central bank chief Yannis Stournaras cautioned that recession risk is "real," while Finland's Olli Rehn said there are "no obvious signs" that war-fueled inflation is embedding itself through a wage-price spiral.

Policymakers are now closely monitoring potential second-round effects — wage pressures, rising selling prices, and shifting inflation expectations among households and firms.
Energy Shock and Supply Chain Risks

The corporate survey found that the oil price spike in March was feeding through rapidly into prices for most energy-dependent goods and services. A partial buffer exists: large corporations appear better hedged against energy volatility than they were during the 2022 energy crisis, helping contain the damage.

Still, the survey sounded a stark warning — if the Middle East conflict drags on without resolution, supply chain disruptions could compound both inflationary pressure and demand weakness. Specific concerns centered on potential shortages of hydrogen and helium.

"Supply disruption of this nature could generate inflationary pressure more akin to that witnessed during the COVID-19 pandemic," the survey said, while noting mitigating factors such as weaker global demand.

For most companies surveyed, however, the dominant fear remains the war's corrosive effect on consumer confidence and final demand rather than direct energy costs.

Wages: Cooling, but War Adds Uncertainty
On labor costs, firms continue to anticipate wage growth moderating to 2.9% in 2026 and 2.8% in 2027, down from 3.5% recorded in 2025. Yet the conflict is already nudging some companies to revise their 2027 wage forecasts upward — and a broader share views the war as an upside risk to pay growth going forward.

MENAFN04052026000045017169ID1111066513