The European Central Bank (ECB) has predicted that it will raise interest rates cumulatively by 50 basis points by the first half of 2027. This expectation is due to the continued high energy prices and ongoing inflationary pressures in services, which have kept price pressures above the set target.
Projected Interest Rate Increase
According to a research report, the European Central Bank may implement another increase of 25 basis points by the end of 2026 and then another increase of the same amount in the first half of 2027, provided that energy and commodity prices remain at high levels.
Read more: Iran and U.S. Agreement and Its Impact on the Stock Market
Inflation in the Eurozone
Overall inflation in the Eurozone, measured by the Harmonized Index of Consumer Prices (HICP), rose to 3.8 percent year-on-year in September, up from 3.2 percent in August. This increase is mainly due to a sharp rise in energy prices.
Energy inflation in September increased to 18.9 percent, exceeding 14.3 percent from the previous month. Additionally, prices rose by 4 percent compared to the previous month, marking the fastest growth in the last six months.
The report also points to geopolitical disruptions in the Middle East and warns that oil and gas prices may remain elevated for a longer period.
Infrastructure price pressures also continue, with core inflation slightly rising from 2.4 percent in August to 2.5 percent in September. Service inflation also increased from 3 percent to 3.2 percent, indicating ongoing domestic price pressures.
However, inflation for core goods remained unchanged at 1.2 percent, indicating that the pass-through of high energy costs to core goods prices has remained limited.
The report states that this trend is somewhat relieving but warns that the indirect effects of rising energy and transportation costs need to be monitored.
Transportation prices have emerged as a significant factor in the overall inflation increase, rising by 9.8 percent year-on-year in September. Prices in the housing, water, electricity, gas, and other fuels sector also increased to 5.3 percent, up from 4.3 percent the previous month.
Food inflation also rose to 1.1 percent in September, up from 0.8 percent in August, partly due to a sharp increase in vegetable prices.
ICICI Bank has stated that the combination of high energy costs and sticky service inflation could complicate the European Central Bank's efforts to bring inflation back to target and strengthen the need for further monetary policy tightening.
Read more: Sultanate of Oman to Participate in the Annual Meetings of the International Monetary Fund and World Bank 2026 · Valdis Dombrovskis: Russian Diesel Oil Exports Will Not Affect Prices
