The European Central Bank lifted its medium-term inflation outlook and slightly upgraded its euro-area growth forecast, warning that headline price pressures will surge to 3% in 2026 before receding toward its 2% target.
The September 2026 staff projections, presented by Executive Board member Philip R. Lane at the University of Lausanne on Sept. 24, show headline harmonized index of consumer prices (HICP) rising from 2.1% last year to 3.0% in 2026, driven largely by a 9.3% jump in energy prices. Inflation is projected to ease to 2.5% in 2027 and 2.1% in 2028.
Compared with the June 2026 forecast, the staff raised the 2027 HICP estimate by 0.2 percentage points and the 2028 reading by 0.1 points, while keeping 2025 and 2026 figures unchanged. Real gross domestic product growth was revised down by 0.2 points for 2025 to 1.3%, but upgraded by 0.1 points for 2026 to 0.9%, by 0.2 points for 2027 to 1.4%, and left flat at 1.5% for 2028.
Underlying inflation remains persistent. HICP excluding energy is expected to hold near the 2.3%–2.6% range across the projection horizon, while unit labour costs are projected to decelerate from 3.2% last year to 2.3% by 2028. Compensation per employee should average 3.3% annually from 2026 onward.
Demand indicators point to a weak near-term outlook. Private consumption is forecast to decelerate to 1.0% in both 2026 and 2027 before accelerating to 1.3% in 2028. Government spending is expected to provide a temporary boost of 1.9% in 2026 before moderating. Total investment is projected to slow sharply to 1.8% this year from 2.9% last year, with exports easing to 2.1% in 2026 before climbing to 3.2% in 2027.
The unemployment rate is anticipated to decline gradually from 6.3% in 2025 to 5.9% by 2028.
On the fiscal side, the Euro area budget deficit is projected to remain at 3.6% of GDP throughout 2026–2028. The cyclically adjusted primary balance is expected to loosen by roughly 0.5 percentage points in 2026 before tightening by 0.4 points in 2027 and 0.2 points in 2028.
The euro strengthened modestly below the September projection level, trading at 1.14 dollars against the 1.16 implied by the staff model as of Sept. 23. The nominal effective exchange rate also dipped to 99.65 from a projected 100.26. Non-energy commodity prices remained elevated, with the metals index at 201.32 and the food index at 175.53 in mid-September.
Lane also highlighted growing exposure to artificial-intelligence-related trade. Euro-area imports of core AI goods surged 16.2% between 2024 and 2025, far below the 55.7% increase recorded by the United States. The euro area’s share of global AI-related trade stood at 9.6% for exports and 10.9% for imports in 2023, while the U.S. accounted for 12.5% and 12.3% respectively.
