ECB: Nomura says oil and gas shock appears under control

Analyzing the Effects of Energy Price Shifts on Eurozone Inflation and ECB Policy

Andrzej Szczepaniak, Senior European Economist at Nomura, explores how recent fluctuations in crude oil, natural gas, and EUR/USD—driven by the US and Israel's conflict with Iran—may influence euro area HICP inflation and the European Central Bank's outlook. He observes that the current increases in oil and gas prices, compared to the ECB's projections for December 2025, are expected to have only a slight impact on rate hike forecasts for 2026 and 2027, suggesting that the ECB's immediate policy response will likely remain restrained.

Inflation Trends and Interest Rate Outlook

The ECB is closely monitoring whether the recent surges in crude oil and natural gas prices are significant and sustained, as these factors will directly affect HICP inflation across the eurozone.

It is crucial to consider these developments alongside the ECB's assumptions for energy prices in its December 2025 forecasts. Additionally, even though the decline in EUR/USD is minor, it could still contribute to heightened inflationary pressures.

Financial markets are expected to slightly adjust their expectations for rate increases by December 2026 and December 2027. However, these adjustments are not anticipated to fully reflect additional hikes, with the total change in pricing by the end of 2027 likely remaining well below 25 basis points.

The uptick in 1-year HICPxt inflation pricing, rising from 1.80% to 1.97%, and 2-year HICPxt inflation pricing, increasing from 1.77% to 1.91%, indicates that investors believe the impact of higher oil prices will be limited and that the geopolitical conflict may not persist for long.

Overall, the current market movements appear contained enough that the ECB is unlikely to take immediate action. It's worth noting that the ECB had previously projected HICP inflation to fall below its target from the third quarter of 2026 through the fourth quarter of 2027.

(This article was produced with assistance from an AI tool and reviewed by an editor.)