The European Central Bank is keeping one eye on a familiar threat. At the ECB and Its Watchers conference on March 25, 2026, ECB President Christine Lagarde warned that firms and workers across the euro area are likely to respond more quickly to rising energy costs than they did during the 2021-22 shock. The reason is simple: people remember what happened last time.
That collective memory of runaway inflation changes the math. When businesses and employees expect prices to keep climbing, they act faster, raising prices and demanding higher wages before the full pressure even arrives. In economic terms, that is how a supply shock becomes a wage-price spiral.
Why this time is different from 2022
During the 2022 energy crisis, gas prices in Europe soared to around €340 per megawatt hour. Today, in early 2026, prices sit near €60. That is a dramatically smaller starting shock, and Lagarde acknowledged that the initial pass-through of energy costs to consumer prices is likely to be more limited as a result.
Euro area headline inflation measured 1.9% in February 2026, just a hair below the ECB’s 2% target. Compare that to the over 5% inflation rate during the peak of the 2022 crisis.
The ECB’s own research shows that energy cost pass-through to consumer prices is stronger when inflation is already elevated, when businesses are running near full capacity, or when people have recent experience with big price swings.
ECB Governing Council member Olli Rehn noted that labor market conditions in 2026 are less intense than they were in 2022. A looser jobs market typically means workers have less bargaining power to demand rapid wage increases.
The ECB’s internal research documented that monthly changes in consumer prices rose from roughly 8% to 12% during the 2022 energy shock, as firms accelerated their pricing decisions from quarterly to monthly price reviews.
Scenarios, risks, and what the ECB is watching
The ECB published formal scenarios in March 2026 that map out potential outcomes. In a less severe case, inflation could rise by around 1 percentage point. In a more severe scenario, the increase could reach nearly 3 percentage points by 2027.
What this means for markets and investors
The ECB’s own modeling puts a plausible worst-case inflation surge at nearly 3 percentage points above current levels by 2027. Higher inflation sooner than expected would almost certainly mean higher interest rates sooner than expected.
Energy prices in Europe, particularly natural gas benchmarks, are the leading indicator. Wage growth data across the major euro area economies will tell you whether second-round effects are building. Any revision to the ECB’s inflation forecast, especially toward that upper scenario, would be a meaningful signal that the policy calculus has changed.