Euro zone inflation could remain above the European Central Bank’s 2% target well into the first half of 2027, ECB chief economist Philip Lane said in testimony to the European Parliament’s economic affairs committee on Tuesday. The assessment, delivered a day after President Christine Lagarde warned that the outlook remains highly uncertain, immediately shifted market expectations: traders now see only a one-in-five chance of a follow-up rate rise at the ECB’s July meeting, with the next move fully priced in only for December.

Lane’s charts showed that the recent fall in oil prices has moved the energy trajectory more firmly between the central bank’s baseline and milder scenarios, reducing the urgency for back-to-back tightening. The ECB raised its three key rates by 25 basis points in June, taking the deposit rate to 2.25%, and lifted its 2026 inflation forecast to 3%. Lane characterised the current energy shock as distinct from the 2021–22 crisis: it is concentrated in transport fuels rather than household electricity and gas, and its pass-through is being partly absorbed by corporate profits. Negotiated wage growth slowed to 2.5% in the first quarter, from 2.9% in the previous quarter, tempering fears of an immediate wage-price spiral.

Speaking in Bratislava, Slovak central bank governor Peter Kažimír, one of the Governing Council’s more hawkish members, insisted that “the direction is clear and our work is not yet done,” arguing that peace will not instantly reverse the inflation damage. In Madrid, Bank of Spain governor José Luis Escrivá pointed to spreading indirect effects, with transport and food costs now rising along the production chain. Lane himself forecast that food inflation, which recently dipped from 2.4% to 1.9%, will increase again as higher energy costs work through supply chains.

Despite the persistent price pressures, Lane stressed that the ECB is taking a “measured” and “calibrated” approach, not a “gigantic response.” He noted that economic activity, while lower than hoped, remains “far above a stagnating economy,” cushioned by a solid labour market, heavy investment in artificial intelligence, and increased public spending on defence and infrastructure. The next factual milestone is the ECB’s July policy meeting, where incoming data on energy prices, core inflation and wage settlements will determine whether the Governing Council judges that the June hike was sufficient for now.