Finance
ECB Raises Inflation Forecast on Higher Energy Costs
Published by Global Banking & Finance Review®
Posted on March 19, 2026
2 min readLast updated: March 19, 2026
Quick Summary
The ECB lifted its inflation forecast, now seeing 2026 inflation at 2.6% (up from 1.9%) and 2027 at 2.0% (was 1.8%), citing rising energy costs and geopolitical risks from the Middle East.
ECB Lifts Inflation Forecast on Energy Price Surge, Warns of Further Risks
ECB Raises Inflation Projections Amid Energy Price Surge
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.
Updated Inflation Forecasts
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%.
Risks from Energy Prices and Geopolitical Tensions
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.
Upcoming Scenario Analysis and Market Reactions
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.
ECB Baseline Projections for Inflation and GDP Growth
The following are the ECB's baseline projections for inflation and GDP growth. Its previous projections from December are in brackets.
Projection Table
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 Credits
(Reporting by Balazs Koranyi; Editing by Catherine Evans)
Key Takeaways
- •ECB raised 2026 inflation projection to 2.6% and 2027 to 2.0%, both above prior forecasts and its 2% target
- •Higher energy prices and risk of prolonged U.S.‑Israeli conflict escalating oil supply disruption drove the revisions
- •Alternative scenarios will be released showing inflation and growth deviations amid energy shock, with investors increasingly pricing possible ECB rate hikes
Frequently Asked Questions about ECB raises inflation forecast on higher energy costs
1What are the ECB's new inflation projections for 2026 and 2027?
The ECB now projects 2026 inflation at 2.6% and 2027 at 2.0%, both above previous estimates and its 2% target.
2How could a prolonged Middle East conflict affect inflation?
A prolonged conflict could disrupt oil and gas supplies, pushing inflation above baseline projections and reducing economic growth.
3What is the market's outlook for inflation in the next year?
Markets expect inflation could surge above 3.5% in the next year, possibly taking several years to return to the ECB's 2% target.
4Will the ECB consider raising interest rates?
If inflation continues to rise due to energy shocks, the ECB may need to hike interest rates to keep long-term expectations anchored.
