Exceeding modest expectations neatly captures the mood surrounding the European economy. Despite a fraught and complex geopolitical backdrop, growth forecasts have held up better than anticipated, with EU real GDP expected to grow by around 1.2% this year and 1.3% next.

That said, the Harmonised Index of Consumer Prices (HICP), which measures consumer price inflation and price stability across the Euro area, rose to 3.8% in September due to resurgent energy prices, exceeding the ECB's 2% target (Figure 1). While inflationary pressures elsewhere remain relatively contained, higher energy costs are still likely to erode real incomes and weigh on discretionary spending. Barring further disruption, the recent inflation spike may prove to be the cumulative high-water mark of successive tariff and oil-related effects. There are few signs, for now, of the second-round effects that characterised the 2021-22 energy crisis.

The difficulty for monetary policy is that inflation may be peaking just as economic activity remains unexpectedly resilient. Were growth truly faltering, policymakers might be more willing to look through the current inflation spike. Instead, exceptionally tight labour markets and Germany's long-anticipated fiscal stimulus have made it difficult to argue for anything other than a restrictive stance. For households and retailers, a higher-for-longer rates environment appears to be the new reality. Exceeding expectations may therefore prove something of a mixed blessing in the context of retail.

Fuel prices as a retail stress indicator

Few household costs are encountered as frequently or as visibly as fuel. As such, its influence on sentiment can be disproportionately higher than on the wallet. During supply-driven energy shocks especially, the pump becomes a bellwether of wider uncertainty.

Fuel’s significance therefore extends beyond its weight within household budgets. During demand-driven downturns - such as the GFC and the pandemic - fuel prices and consumer confidence decreased in-step as broader economic distress overwhelmed fuel's influence. By contrast, during supply-driven shocks, from the Eurozone debt crisis to the Ukraine-war energy crisis and the recent Hormuz disruption, the relationship inverted. In these instances, rising fuel prices coincided with weakening consumer confidence, highlighting growing concerns over inflation, household finances and future spending power (Figure 2).

Our analysis suggests the latest energy shock followed a familiar precedent. During its acute phase between January and June 2026, fuel prices maintained a strong inverse relationship with confidence (-0.97 for diesel and -0.90 for petrol). The mid-year recovery in confidence coincided with fuel prices easing from their spring highs, though they remained elevated relative to the start of the year. By August the relationship weakened, falling to -0.78 and -0.61 respectively (Figure 3). This suggests that the initial shock weighed more heavily on sentiment than the price level itself. The psychological impact, strong to begin with, dissipated as households adapted to a new norm.

Recent market developments have brought that correlation back into focus. Confidence fell again in September as average petrol prices exceeded €2.00 per litre for the first time, while diesel rose to €2.18 per litre. Whether temporary or not, the risk is that fuel prices once again become a drag on consumer sentiment.

In diesel’s case, the relationship is particularly pronounced. Its influence extends far beyond the forecourt, feeding directly into freight, distribution and business costs. Rising diesel prices can therefore provide an early warning that inflationary pressures are spreading through the wider economy, amplifying concerns around future purchasing power.

Retail parks’ appeal during fuel price shocks

For retailers, a key consequence of rising fuel prices lies in consumer psychology and subsequent spending behaviour. When fuel costs absorb a greater share of household expenditure, consumers exhibit greater caution towards discretionary and big-ticket purchases. By contrast, everyday and value-led spending, often essential in nature, tends to prove more insulated. This provides an important source of resilience for the sector during periods of energy-induced economic stress.

A second fuel-related consequence relates to the cost of mobility for consumers driving out-of-town. Trips are planned with greater purpose, and spending tends to concentrate within fewer, more productive journeys. While this may reduce the frequency of visits to some out-of-town destinations, it increases the importance of schemes capable of supporting multiple shopping missions and encouraging longer dwell times. It follows that fuel-price shocks need not be destructive for a sector whose appeal combines value, convenience and everyday utility.

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