View of the ECB headquarters in Frankfurt (Credits: BCE)
Euro zone consumers, already scarred by the war in Ukraine, changed their attitudes more quickly following the upheavals of the war in Iran, according to a study by the European Central Bank (ECB) published on Friday, meaning that the economic shock could be deeper and faster.
Russia’s invasion of Ukraine in February 2022 caused an energy crisis and soaring inflation from which Europe had largely recovered, but US-Israeli airstrikes on February 28 triggered a war against Iran, leading to unprecedented disruption of energy supplies.
ECB researchers have analyzed whether euro zone consumers have become more sensitive to the economic impact of such geopolitical upheavals and say the data suggests this is the case.
Based on this survey, ECB economists, including Olivier Coibion, noted that consumers immediately paid increased attention to price variations from the start of the Iranian conflict, even if inflation was still around 2%, the bank’s target level.
Nearly half of those surveyed said they were tracking price developments in March 2026, a similar proportion to January 2023, when inflation in the eurozone, at 8.6%, theoretically made concerns much more likely.
TWO SCARS CAN REINFORCE EACH OTHER
“This evidence suggests that consumers are suffering the consequences of the war in Iran with a potential ‘double scar,'” the ECB researchers said in their blog, which does not necessarily reflect the bank’s official position.
Economists have indicated that such scars, or memories of financial difficulties, can increase consumers’ sensitivity to new shocks.
“This makes stagflation scenarios – rising prices and slowing growth – more pronounced and more persistent in their beliefs. And this could increase macroeconomic uncertainty and ultimately influence consumer spending,” they said.
Oil prices
LCOc1
which have a major inflationary impact, fell on hopes of a peace deal, but climbed well above $120 a barrel in April following the war with Iran.
As the ECB struggles to manage the economic impact, it is almost certain that it will raise interest rates at its next meeting.
(Written by Francesco Canepa; French version Rihab Latrache, edited by Augustin Turpin)
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