Survey Raises 2026 Inflation Forecast to 3% and Strengthens Case for ECB Rate Hike in December
Key Facts
Higher inflation expectations strengthened the case for the European Central Bank to raise interest rates in December, according to a Reuters report based on the bank’s survey and sources familiar with the matter, though a hike is not an announced decision or a formal commitment by the Governing Council. The bank’s survey raised its average inflation forecast for 2026 to 3.0% from 2.7%, and lifted its 2027 forecast to 2.6% from 2.2%. Reuters attributed most of the increase in forecasts to energy costs. Three sources told Reuters that ECB policymakers expected a hike on 17 December that would raise the deposit rate to 2.75%. The sources added that the expected increase could be followed by a pause, while the official rate path remains subject to the council’s assessment of the data.
The forecasts come after the ECB’s Governing Council left its three key interest rates unchanged in its decision on 29 October. The bank set the deposit facility rate at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%. ECB President Christine Lagarde said the council discussed raising rates at its meeting but unanimously decided to wait for more information before making a decision. This indicates that tightening was already under discussion, without becoming a decision at that meeting. The bank reiterated that it is not pre-committing to a specific rate path, leaving its options open as new data arrive.
The energy shock poses conflicting risks for the bank. Lagarde said higher energy prices increase inflation risks and weigh on the growth outlook, while underlying inflation had remained broadly stable up to that point. The bank said the size and duration of the energy shock, together with its indirect effects and second-round effects, could push inflation higher and growth lower. These risks matter in light of the survey’s forecast that underlying inflation would remain at 2.4% in 2026 and 2.5% in 2027. Participants expected underlying inflation to remain above 2% even in 2028. By contrast, the survey forecast wage growth to slow from 3.3% in 2026 to 3.1% in 2027 and then 2.8% in 2028, adding another indicator for assessing price pressures over a longer horizon.
Activity data point to stronger-than-expected economic growth in the third quarter, with euro-zone gross domestic product rising 0.4% from the previous quarter, above analysts’ forecast of 0.2%. On an annual basis, growth was 1.3% in the period from July to September 2026. On prices, inflation stood at 3.8% in September 2026, remaining above the bank’s 2% target. Taken together, the indicators show quarterly growth exceeding expectations and inflation above target, at a time when the bank has said the energy shock could weaken growth and raise inflation. The council therefore faces a decision that requires balancing the risk of persistent price pressures against their potential impact on activity.
The next decision will come after the release of the euro zone’s preliminary October inflation estimate on 4 November 2026, the publication date set in the bank’s calendar, which does not include a forecast for the reading. Lagarde said the December meeting would be based on new projections and additional data, including readings on inflation, output, employment and wages. The Governing Council is scheduled to hold its monetary policy meeting on 16 and 17 December 2026 in Frankfurt, with a press conference after the second day. This schedule puts a new set of indicators between the October decision and the next meeting. The expected hike on 17 December remains a forecast attributed by Reuters to the survey and sources familiar with the matter, while the bank has tied its decisions to its assessment of the data, the inflation outlook and its risks.