The inflation story in the euro area is far from over. While recent data suggest that price pressures have cooled compared to the peaks seen in 2022 and 2023, new analysis from Nomura indicates that inflation risks could tilt higher again beyond 2026. For investors, policymakers, and households across Europe, this outlook raises important questions about interest rates, economic growth, and long-term financial planning.
In this article, we break down what higher inflation risks beyond 2026 could mean for the eurozone economy, the European Central Bank (ECB), and global financial markets.
Understanding the Current Euro Area Inflation Trend
Over the past few years, the euro area has faced significant economic turbulence. Energy price shocks, supply chain disruptions, and geopolitical tensions pushed inflation to multi-decade highs. In response, the European Central Bank implemented aggressive interest rate hikes to bring inflation back toward its 2% target.
By 2025 and early 2026, inflation appeared to be moderating. Core inflation showed signs of stabilization, and headline figures began aligning more closely with the ECB’s medium-term objective. However, according to Nomura’s latest projections, structural forces may drive renewed upward pressure on prices after 2026.
Why Inflation Risks Could Rise Again After 2026
Nomura’s outlook highlights several key factors that could fuel higher inflation in the eurozone beyond 2026:
1. Structural Labor Market Pressures
Europe’s aging population and tight labor markets are likely to sustain wage growth. As demographic challenges reduce the available workforce, companies may face higher labor costs. If productivity gains fail to keep pace, wage-driven inflation could persist.
2. Energy Transition Costs
The transition toward renewable energy and decarbonization requires massive investment. While essential for long-term sustainability, these structural adjustments could raise production costs in the short to medium term. Higher energy and infrastructure expenses may gradually feed into consumer prices.
3. Fiscal Policy Shifts
Governments across the euro area continue to implement fiscal support measures, industrial policy initiatives, and green transition subsidies. If fiscal policy remains expansionary while monetary policy eases, inflationary pressures could re-emerge.
4. Global Supply Chain Realignment
Geopolitical fragmentation and supply chain diversification—often referred to as “de-globalization”—can reduce efficiency and increase costs. Relocating production closer to home may enhance resilience but also add price pressures across key sectors.
What This Means for the European Central Bank
If inflation risks indeed tilt higher beyond 2026, the ECB could face a difficult balancing act. Markets currently anticipate eventual monetary easing as inflation cools. However, persistent structural pressures may limit how far and how fast interest rates can fall.
For investors watching ECB interest rate forecasts, this scenario suggests:
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Rates may remain higher for longer than expected.
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Volatility in eurozone bond markets could increase.
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Long-term inflation expectations may become less anchored.
A premature easing cycle could reignite inflation, while overly restrictive policy could suppress growth. This delicate trade-off will likely define the next phase of euro area monetary policy.
Implications for Investors and Financial Markets
The prospect of higher inflation beyond 2026 carries significant implications for various asset classes:
European Bonds
If inflation expectations rise, bond yields may trend higher. Long-duration bonds could face renewed pressure, while inflation-linked securities may become more attractive.
Euro Exchange Rate
Persistent inflation combined with relatively tight monetary policy could influence the euro’s performance against major currencies such as the US dollar.
Equity Markets
Certain sectors—such as energy, infrastructure, and industrials—may benefit from structural investment trends tied to the green transition. However, higher input costs could squeeze profit margins in consumer-focused industries.
Real Assets
Real estate and commodities may regain attention as hedges against long-term inflation risks.
Is This a Return to Persistent Inflation?
It is important to note that Nomura’s outlook does not necessarily signal a return to the extreme inflation levels seen during the energy crisis. Rather, it suggests that inflation may settle at a structurally higher baseline than markets currently expect.
Instead of a temporary spike, the concern is about long-term inflation persistence driven by demographic, fiscal, and structural economic changes. This represents a shift from cyclical inflation toward a more structural inflation environment.
Key Takeaways for 2026 and Beyond
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Euro area inflation may not fully stabilize at 2% in the long run.
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Structural factors like labor shortages and green investment could sustain price pressures.
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The ECB may adopt a more cautious approach to rate cuts.
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Investors should prepare for prolonged interest rate volatility and adjust portfolio strategies accordingly.
Final Thoughts
The eurozone’s inflation battle may be entering a new phase. While recent improvements offer short-term relief, the longer-term outlook remains uncertain. Nomura’s warning that inflation risks could tilt higher beyond 2026 reminds us that structural economic forces do not disappear overnight.
For businesses, policymakers, and investors, the message is clear: planning for a higher-for-longer inflation environment may be the prudent strategy.
As the global economy evolves, staying informed about euro area inflation forecasts, ECB policy decisions, and structural economic trends will be essential for navigating the years ahead.
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