FX.co ★ Euro area inflation to hold near 3% through year-end amid Middle East shock

Philip Lane, chief economist at the European Central Bank, acknowledged that euro area inflation will not return to the 2% target in 2026. By his estimate, cited by Bloomberg, consumer price growth in the currency bloc will remain at around 3% through the end of the year. The key reason for persistent price pressure is the ongoing war in the Middle East, and further developments will depend directly on prospects for resolving the Iranian crisis.

In July 2026, annual inflation in the euro area edged up to 2.9% after 3.2% in May and 3.0% in April (for comparison, the rate in May 2025 was 1.9%). Significant dispersion remains across individual European countries: the lowest annual increases were previously recorded in Sweden (1.1%), Denmark, and the Czech Republic (both 1.8%), while the highest rates were seen in Romania (9.7%), Bulgaria (6.3%), and Lithuania (5.1%).

Despite ongoing inflationary pressures, the euro area economy is showing resilience to external shocks. In the second quarter of the year, regional GDP growth exceeded analysts’ expectations and amounted to 0.4%. Lane said the European economy is currently coping with the challenges and doing "ok," while warning that risks of renewed instability persist.