Goldman Sachs Raises Eurozone Inflation Forecast: Core Inflation Peak Delayed to 2027

Overview

This report updates Goldman Sachs' inflation forecasts for the Eurozone, primarily reflecting the expanded impact of energy prices, emerging signs of disruption in manufacturing supply chains, and indirect effects from food and healthcare service prices. Although a loosening labor market limits wage-price spirals, multiple cost-push factors have led to upward revisions in both headline and core inflation peaks, with delayed timing for these peaks. Goldman Sachs' forecasts now sit between the ECB's official projections and market pricing, but the core inflation path is closer to the ECB's adverse scenario.

Core views

Regarding energy inflation, while benchmark crude oil and natural gas prices are expected to decline, crack spreads for refined products like diesel and gasoline have widened to historic highs. Coupled with rising insurance premiums and logistics bottlenecks, this has caused consumer fuel prices to rise far beyond levels implied by crude oil prices alone. This factor has added an extra 2 percentage points to recent energy inflation. Considering regulatory electricity price adjustments, Goldman Sachs maintains its view that energy inflation will peak at 12% in Q2 2026, but has raised its Q4 2026 expectation from 9.5% to 10.5%. Core goods inflation faces new upside risks. Surveys indicate intensifying signs of supply chain disruptions and a sharp rise in petrochemical raw material prices. Goldman Sachs utilized an Input-Output Table to build a cost-push price model, simulating the transmission of upstream chemical and plastic price shocks to final consumer goods. With approximately 20% of global chemical capacity offline, base chemical prices are about 60% higher than pre-conflict levels; the model shows this will cause an additional cumulative increase of 2.1% in core goods prices. Consequently, Goldman Sachs has raised its core goods price forecast by 0.8 percentage points through end-2028, lifting the core goods inflation peak to 1.8% in Q2 2027 (previously 1.5% in Q1 2027). Inflation for Food, Alcohol, and Tobacco (FAT) is supported by high energy, freight, and fertilizer costs. While short-term pressure from global food commodity prices is limited, the pressure from energy costs will manifest in the next harvest cycle. Goldman Sachs maintains its view that FAT inflation will peak at 3.6% in Q4 2027, a level higher than the ECB's forecast. Regarding services inflation, energy-sensitive components such as airfares and dining are impacted by fuel costs, while car insurance and regulated rents feature price 'catch-up' mechanisms. Goldman Sachs has slightly raised the services inflation peak to 3.4% in Q3 2026. However, given that the labor market is significantly looser than in 2021-2022, wage growth is expected to fall back to the 2.5-3% range consistent with a 2% inflation target, thus limiting broad second-round effects.

Analysis framework

Goldman Sachs adopted an analytical approach combining component breakdown with model simulation. First, regarding the energy component, the analysis focused not only on benchmark crude oil prices but also on the non-linear impact of refined product crack spreads on end-consumer prices, adjusting sensitivity parameters accordingly. Second, in the core goods analysis, a Leontief price model based on global Input-Output Tables was introduced to quantify the indirect transmission of upstream petrochemical price shocks to final consumer goods through intermediate links such as packaging and solvents; this method captures inflationary pressures deep within the supply chain better than traditional direct correlation analysis. Finally, survey data models (including PMI and European Commission surveys) were used to cross-verify core inflation forecasts, while monitoring labor market tightness to assess the risk of wage-price spirals.

Methodology notes

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Input-Output Tables and Cost-Push Price Models

  The report uses Input-Output Tables to track how upstream raw materials (such as chemicals) indirectly affect final consumer goods prices through complex manufacturing chains. This helps readers understand why seemingly unrelated upstream price hikes can drive up everyday commodity prices.

• Macroeconomic framework

  Second-round Effects and Labor Market Slack

  Refers to whether an initial price shock (such as an energy price hike) leads to wage increases, thereby triggering more persistent inflation. The report assesses whether the labor market is sufficiently slack to block such a spiral by observing indicators like the ratio of job vacancies to unemployed persons.

• Industry/Sector Analysis FrameworkVolume-Price Split

  Impact of Crack Spreads on End-User Prices

  In energy analysis, this involves looking beyond crude oil prices to isolate the margin in the refining process. When crack spreads widen, end-user product prices like gasoline and diesel rise even if crude oil prices remain stable; this is key to understanding short-term fluctuations in energy inflation.

Key data

• Headline Inflation Peak Forecast3.4% (2026Q4)Previous forecast was 3.2% (2026Q2)
• Core Inflation Peak Forecast2.7% (2027Q2)Previous forecast was 2.5% (2026Q3)
• Energy Inflation Peak Forecast12% (2026Q2)Unchanged, but Q4 2026 expectation raised from 9.5% to 10.5%
• Core Goods Inflation Peak Forecast1.8% (2027Q2)Previous forecast was 1.5% (2027Q1)
• Services Inflation Peak Forecast3.4% (2026Q3)Previous forecast was 3.3%
• FAT Inflation Peak Forecast3.6% (2027Q4)Unchanged
• Brent Crude Oil Price Forecast$90/bbl (2026Q4)Assumes normalization of Gulf energy exports by end-June
• TTF Natural Gas Price Forecast40 EUR/MWh (2026Q4)Impacted by weak Asian LNG demand

Impact & implications

Goldman Sachs' inflation forecasts are higher than the ECB staff's baseline projections (headline peak 3.1%, core peak 2.3%) and closer to the ECB's adverse scenario. This implies that the path for Eurozone inflation to decline may be more tortuous and prolonged than policymakers expect. For the market, current pricing implies a headline inflation peak of 3.7%; Goldman Sachs' forecast is slightly lower, suggesting the market may be overly concerned about the persistence of short-term energy shocks but may be underestimating the stickiness of core inflation. If core inflation exceeds 3% as suggested by survey models, it could force the ECB to maintain restrictive monetary policy for a longer period.

Risks

• Prolonged blockade of the Strait of Hormuz obstructing commodity flows, further pushing up prices and causing chemical supply disruptions
• Expansion of supply chain pressures, with survey indicators showing a rise to 50% of peak levels seen in 2022-23
• Strong consumer reaction to spot prices of intermediate goods, leading to faster-than-expected price transmission
• Faster-than-expected normalization of crude oil and refined product prices, or producers absorbing more cost shocks

What to watch

• Whether core inflation reaches a higher peak of 3.2% in Q4 2027 as indicated by survey models
• Whether refining crack spreads widen further
• Whether labor market wage growth indeed falls back to the 2.5-3% range consistent with targets
• Subsequent trends in global fertilizer and food commodity prices