The wars in the Middle East and Ukraine “have led to a further increase in the energy price profile,” with an acceleration to 14.3% in August from 10.3% in July, with a “significant contribution from refining margins.”
“This is likely to keep headline inflation well above target until the first half of 2027.”
The ECB writes this in its economic bulletin, which predicts that inflation will return to the 2% target “towards the end of 2027, supported by the effects of higher interest rates.” Energy is not the only driver of prices: “inflation excluding energy and food is projected to be 2.5% in 2026, 2.6% in 2027, and 2.3% in 2028,” and “the improving economic outlook should also contribute to a slight increase in core inflation,” that is, excluding food and energy.
In the second quarter of 2026— at the height of the energy shock— ” labor costs per employee increased at a rate of 3.3% year-on-year, slowing from 3.5% in the first quarter. Rising labor productivity also helped contain growth in unit labor costs, which slowed to 2.6% from 3.5% in the first quarter.” Unit profit growth, however, rose from 0.3% to 2.2% . The ECB writes , noting in particular that among the drivers of high inflation are not only “the rise in energy commodity prices” but also “the significant contribution from liquid fuel refining margins.” “Looking ahead, the ECB wage index points to a modest acceleration in contractual wages, to 2.7%, in the first half of 2027.”
Economic Bullettin
https://www.ecb.europa.eu/press/economic-bulletin/html/eb202605.it.html
Outlook Euro Area Economic
https://www.ecb.europa.eu/press/key/date/2026/html/ecb.sp260924~e0eceef02c.it.pdf
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