Goldman Sachs: European Energy - FJElite

European fuel prices have risen much more than crude oil as refining margins widened sharply, raising questions about forecasting fuel inflation beyond timely pump data and the implications for the inflation outlook.

We reassess the pass-through from oil and natural gas prices into Euro area inflation. Rolling-window estimates suggest that a 10% rise in crude oil now raises headline inflation by 18bp through fuels, versus 13bp historically, while a 10% rise in TTF adds around 5bp through electricity and gas, versus 8bp historically. The composition of transmission has shifted towards oil, but the aggregate headline sensitivity to a 10% energy shock remains 30bp. As a result, we still expect Euro area energy HICP to peak at 18%yoy and headline inflation at 3.8%yoy in 2026Q4.

We also update our fuel inflation forecast by directly incorporating product spreads and modelling fuel taxes separately. Our updated models point to a faster normalisation of fuel price pressures in 2027 and thus a bigger negative base effect further out. We therefore now forecast headline inflation of 2.7% in 2027 (vs 3.0% previously) and 1.9%yoy in 2028.