European Economics: Euro Inflation Monitor: Still Stuck Around 3%

Research evidence excerpt

European Economics: Euro Inflation Monitor: Still Stuck Around 3%

European Economics

26 June 2026 Citi Research

Figure 3. Euro Area HICPxT - Citi vs Market Pricing (% YY)

3.5

Citi F/Mkt Pricing

3.0

2.5

2%

2.0

1.5

Jan-24 Jul-24 Jan-25 Jul-25 Jan-26 Jul-26 Jan-27 Jul-27

Citi Economics Market

© 2026 Citigroup Inc. No redistribution without Citigroup’s written permission.

Source: Citi Research, Bloomberg

For the near-term profile, we see three potential sources of inflation volatility:

n Reversal of tax cuts - While oil prices have almost returned to pre-conflict

levels, headline inflation is still set to remain close to 3% YY until early 2027.

Base effects will contribute to this result, but also the fact that tax rebates on

energy products will be reversed and keep energy YY inflation elevated until next

spring.

n Food prices: El Nino – Despite the drop in energy prices, we still pencil in an

acceleration in food price inflation towards the end of this year and in 1H27.

Chances of a strong El Nino have increased and with it of rising global

agricultural prices (see more on the global impact of El Nino HERE). This could

compound the delayed effects of higher transport fuel and fertilisers costs after

this year’s energy shock.

To be sure, the impact of El Nino on European inflation is not obvious. A 2024

Bank of Spain’s research note actually found that in the last decades El Nino

episodes have lowered rather than boosted Eurozone inflation, by some 0.3pp

after 12 months (instead La Niña, i.e. cooler ocean temperatures, raised and

inflation). The results are explained by the fact that the relevant commodity

basket for European consumers is very different from the "global food

commodity" baskets used in the El Nino literature and that El Nino tends to have