FRANKFURT, March 19 (Reuters) – The European Central Bank raised its inflation projections on Thursday on higher energy costs and said there was a risk of price growth going even higher in case of a prolonged war in the Middle East.
The ECB now sees 2026 inflation at 2.6% in a “baseline” scenario, above the 1.9% predicted in December, and well above its 2% target. For 2027, it saw inflation at 2.0 versus its previous projection for 1.8%.
But the bank acknowledged the risk from higher oil prices, which have nearly doubled since the start of the year, and said it will publish alternative scenarios to reflect the risk of a prolonged U.S.-Israeli war on Iran and elevated oil prices.
“The scenario analysis suggests that a prolonged disruption in the supply of oil and gas would result in inflation being above, and growth being below, the baseline projections,” the ECB said.
These alternative scenarios will be published at 1445 GMT but ECB President Christine Lagarde is likely to preview them in her 1345 GMT news conference.
Financial investors fear that inflation could go much higher in coming months and eventually force the ECB to start hiking interest rates to prevent the energy shock from seeping into the broader economy and pushing up longer-term expectations.
Markets think inflation could surge to above 3.5% in a year and then take several years to come back down to 2%. These expectations are volatile, however, and prone to sharp swings on the twists and turns of the war in Iran.
The following are the ECB’s baseline projections for inflation and GDP growth. Its previous projections from December are in brackets.
2026 2027 2008
GDP Growth: 0.9 (1.2%) 1.3% (1.4%) 1.4% (1.4%)
Inflation: 2.6 (1.9%) 2.0% (1.8%) 2.1% (2.0%)
Core inflation 2.3 (2.2%) 2.2% (1.9%) 2.1% (2.0%)
(Reporting by Balazs Koranyi; Editing by Catherine Evans)
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