Philip Lane, chief economist of the European Central Bank, said on Wednesday there is no significant evidence that soaring energy prices are being passed through into wage demands, tempering fears that a feedback loop between costs and pay could entrench inflation at the ECB.
Speaking at a university lecture, Lane addressed worries that rapid price growth could become self-reinforcing. "We see no major reaction to the energy shock," he said, adding that while households are acutely aware that living costs are rising faster than previously forecast, many companies are pushing back against costly wage settlements.
Some employers are pointing to competitive pressure from Chinese imports and the availability of automation as reasons to keep pay rises modest. Lane noted that artificial intelligence and robotic alternatives are ready to step in if labour costs climb too far.
Eurozone inflation accelerated to above 3% in August, driven largely by the energy surge. Tensions in Iran have further lifted oil and gas prices, prompting some analysts to project headline inflation could approach 4% by year-end.
The energy-driven price spike has intensified bets among investors that the ECB will raise rates several more times after its increases in June and September. Markets are currently pricing in three or four additional steps, though Lane suggested that stripping out the risk premium embedded in market data points to a terminal rate just above 3% next year before easing toward the end of 2027—a trajectory that implies only about two more hikes are actually reflected in pricing.
Lane cautioned that energy prices could follow the ECB’s adverse scenario through mid-next year before returning to the baseline path, calling it a potential downside risk. He also flagged Europe’s thinning natural gas reserves. Storage levels sit at roughly 70%, some 16 percentage points below their historical average, after energy firms delayed restocking during the summer.
