A second wave of energy price hikes is looming! ECB's Lane warns: Eurozone inflation will be higher and more persistent.

European Central Bank chief economist Philip Lane has said a fresh wave of high energy prices means eurozone inflation will stay elevated for longer than the ECB initially expected. "We are seeing a second wave of price increases, not only in oil but also in natural gas," he said in an interview on Tuesday. "We think this energy price increase will make inflation higher and more persistent, before it falls back toward our target from mid-2027." Lane said: "This 'second wave of energy price increases' that we are currently seeing should put upward pressure on food prices, broad energy prices including electricity, and overall goods prices. By contrast, services price pressures should remain contained." After the war in Iran caused energy costs to surge, the ECB this month implemented its second rate hike since then. Officials have since begun paving the way for further tightening, possibly raising rates by another 25 basis points as early as October. In the coming months, eurozone inflation is expected to climb to around 4%; the ECB's latest projections show average inflation of 3% this year and 2.5% next year, significantly above the 2% target. At the same time, the economy continues to show resilience. Lane said: "If the shock this autumn proves more severe and more persistent, it will drag on the economy." "But if the shock is less severe, several positive factors should support growth, such as large-scale public spending in parts of Europe," he said. "We are thinking in particular of Germany's infrastructure and defense investment plans, as well as the EU's NextGenerationEU program." He also stressed: "Although the center of gravity of AI activity is not in Europe, we still have enough companies active in this field, so our economy can also benefit from it." He said: "Our baseline scenario is that, as long as the energy shock does not intensify, the European economy should continue to grow at a steady but moderate pace."