European Central Bank Chief Economist Philip Lane has cautioned that the recent surge in energy prices will likely keep euro area inflation elevated for a longer stretch than initially projected, according to an interview with Swiss newspaper Le Temps.

We are witnessing a second wave of price increases, affecting not only oil but also natural gas, he said in the interview on Tuesday. The current round of energy price pressures is expected to push inflation higher and keep it more persistent, with a return toward our target only beginning to materialize around mid-2027, Lane noted.

The second wave of energy price hikes we are currently seeing should exert upward pressure on food prices, broader energy costs such as electricity, and overall goods prices, Lane explained. On the other hand, the pressure on the services sector should remain contained, he added.

Following the second rate increase this month in the wake of the conflict in Iran, officials have started laying the groundwork for further monetary tightening, with another potential 25-basis-point hike as early as October. Euro area inflation is expected to climb to around 4% in the coming months, and the ECB's latest projections point to average inflation of 3% this year and 2.5% next year, both well above the 2% target.

Meanwhile, the economy continues to show resilience. Lane pointed out that if the shock this autumn proves stronger and more prolonged, it will put strain on economic activity. However, if the impact is milder, some positive factors should support growth, such as the substantial public spending programs in parts of Europe, he said. In particular, Germany's infrastructure and defense investment plans, as well as the European Union's NextGenerationEU initiative, are notable contributors.

He also emphasized that although the center of gravity for artificial intelligence development is not in Europe, the region still has a sufficient number of active companies in this field, and the economy stands to benefit from it. Our baseline projection is that, as long as the energy shock does not intensify, the European economy should continue to grow at a steady but moderate pace, Lane concluded.