Gas Prices Now Far Above Baseline
Yu said these prices sit in the high-90th percentiles and could mean HICP runs about 100bp above baseline. He said markets are therefore pricing a greater risk of rate hikes, potentially earlier than other central banks. He also pointed to possible downside for Eurozone assets and lower real rates. The article notes it was produced with an AI tool and reviewed by an editor. The sudden repricing of European natural gas futures is dramatically shifting the landscape for ECB policy. The Dutch TTF benchmark has surged to over €45 per megawatt-hour, a price level that is almost 60% higher than the assumptions embedded in the central bank’s recent projections. This move completely overshoots the modest increases that were already making policymakers uncomfortable. The current futures curve suggests Eurozone HICP could now run about one percentage point above the ECB’s baseline assumptions. This is a significant deviation, especially as the February 2026 flash inflation estimate already showed a sticky 2.4%, resisting a swift return to the 2% target. The energy component, which we saw drive inflation throughout 2025, is again becoming the primary threat.Markets Shift Toward Hikes
As a result, the market is quickly pricing in the material risk of rate hikes later this year, a sharp reversal from previous expectations. This recognizes an emerging stagflation risk, where the ECB might be forced to tighten policy into a slowing economy, which would not be beneficial for local assets. We are already seeing this reflected in interest rate swaps, which have erased the probability of a mid-year rate cut. This situation contrasts sharply with the outlook during 2025, when moderating energy costs allowed for a clear path toward monetary easing. The greater risk now is a fiscal overreaction from governments to shield consumers, which would only add to inflationary pressures. Such a scenario would further depress real rates across the Eurozone. Create your live VT Markets account and start trading now.
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