Euro area: Inflation risks tilt higher beyond 2026 – Nomura

Nomura’s Andrzej Szczepaniak expects Euro area HICP inflation to average just below the ECB’s 2.0% target in H1 2026, mainly on energy base effects, with little surprise versus consensus. However, he argues that in 2027 and 2028 risks are skewed to the upside, driven by a strong labour market, rising wage pressures and GDP growth above potential.

HICP seen below target before re-accelerating

"European inflation data for February 2026 is released this week (Belgium, France, Spain, Slovenia, Portugal, and Germany) and next."

"We and the consensus expect euro area HICP inflation to on average print marginally below the ECB’s 2.0% target in H1 2026, largely driven by energy base effects."

"However, in 2027 and 2028, we see risks as skewed to the upside largely due to a strong labour market generating upwards wage pressures and GDP growth rising above potential."

"In Germany, risks are skewed to the downside relative to our forecast due to energy prices, and the risk of further pass-through of reduced electricity grid prices, albeit upside risks from services inflation exist."

"In France, the jump in February relative to January is almost entirely base effects owing to energy prices, and we see downside risks due to a reduction in regulated energy prices"

"Meanwhile, we think the risks for Spain are finely balanced."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)