Lane calls the latest energy price rise a second wave and says policy cannot rest on energy alone

Victoria Shinder06 October 2026, 09:222 min read

ECB chief economist Philip Lane set out on 5 October, at the ECB Conference on Monetary Policy, how the bank is reading an inflation picture driven by an energy shock. His framing: the recent surge in energy prices is a second wave of the shock that began with the Middle East conflict, and the bank must judge whether it hits activity and inflation harder than the first.

Where inflation stands. September headline inflation was 3.8%: energy inflation of 18.8% and non-energy inflation of 2.3%. Against the fourth quarter of 2025, before the shock, headline was 2.1%, energy -1.1% and non-energy 2.4%. Within non-energy, food inflation fell from 2.5% to 1.4%, core edged up from 2.4% to 2.5%, goods rose from 0.5% to 1.1% and services eased from 3.4% to 3.2%.

No second-round effects yet. Lane says the underlying inflation indicators show that an upward shift in medium-term inflation has not taken hold, and that the rapid price-adjustment mechanisms seen in 2022 have not been activated. The September projections still have non-energy inflation rising to an average of 2.6% in 2027, mainly from lagged pass-through of energy costs, before returning to 2.3% in 2028.

The second wave. Since July, oil prices have risen significantly, refining margins have jumped and gas prices have surged, and futures now imply a slower decline through 2027 and 2028. Lane sees upside risk to inflation and downside risk to growth from this.

Three other forces. Fiscal policy is loosening by 0.5 percentage points in 2026, driven by German defence and infrastructure spending and the last of Next Generation EU, before tightening of 0.4 and 0.2 points in 2027 and 2028. AI is lifting digital-services output and investment, but from a low base. And higher global long-term interest rates, which Lane partly links to the AI boom, amount to a material tightening of financial conditions in the euro area.

His conclusion is that policy "should not be interpreted as solely driven by the energy supply shock" but needs a multi-pronged diagnosis.