Philip Lane laid out the ECB’s diagnostic challenge in a keynote at the ECB Conference on Monetary Policy 2026: with multiple shocks playing out over different horizons, the task is to distil the medium-term component of inflation from near-term volatility. Rate decisions rest on three criteria, he said: the inflation outlook and its risks, the dynamics of underlying inflation, and the strength of monetary transmission. September data put headline inflation at 3.8%, composed of 18.8% energy inflation and 2.3% non-energy inflation, against a pre-shock benchmark in the fourth quarter of 2025 of 2.1% headline, with energy at negative 1.1% and non-energy at 2.4%.
The key judgment is that the energy shock has not yet infected the medium term. Non-energy inflation has not risen in the aggregate, food inflation fell from 2.5% to 1.4% while services eased from 3.4% to 3.2%, and Lane said the nonlinear rapid price-adjustment mechanisms seen in 2022 have not been activated. The September staff projections do expect non-energy inflation to rise from 2.3% in 2026 to 2.6% in 2027 on lagged pass-through before falling back to 2.3% in 2028.
Lane also flagged the cross-currents shaping the outlook: fiscal policy loosening by 0.5 percentage points in 2026 on German defence and infrastructure programmes before tightening in 2027 and 2028, AI boosting activity with digital services production up 6.8% in the first half of 2026, and demand-destruction channels from the energy shock that can limit how much the policy stance needs to adjust. Second-quarter growth of 0.3% beat the 0.1% projected at the conflict’s onset, but he warned a second wave of the energy shock since July requires close monitoring.