Prices in the EU may rise due to the conflict in the Middle East: ECB forecast
20 March 09:12
A war in Iran could significantly impact inflation in Europe due to rising energy prices. This was stated by European Central Bank President Christine Lagarde following a meeting of the ECB’s Governing Council. This was reported by "Komersant Ukrainian", citing Euronews.
War increases inflation risks
According to Lagarde, the conflict in the Middle East has made economic forecasts more uncertain and could directly affect prices in the near future.
“The war has made the economic outlook significantly less predictable and will have a tangible impact on inflation in the short term,” she said.
The main reason is oil and gas prices
The European Central Bank believes that the main risk of rising inflation is linked to rising energy prices.
According to ECB forecasts:
- inflation in 2026 could reach 2.6%
- in 2027 — around 2.0%
- in 2028 — 2.1%.
However, if the situation worsens, these figures could rise significantly.
Negative scenario: inflation could rise to 4.4%
In the event of serious disruptions to oil and gas supplies through the Strait of Hormuz, inflation could rise:
- to 3.5% in 2026 under the negative scenario
- to 4.4% in the event of a prolonged energy shock.
Lagarde also warned of the so-called “second-round effect,” where rising energy costs affect not only fuel but also:
- wages
- services
- the general price level.
“If energy prices remain high, this could lead to broader inflation through indirect effects,” she explained.
Risks to economic growth
At the same time, the ECB lowered its forecast for eurozone economic growth to 0.9% in 2026, which is nearly stagnant.
Economists attribute this to:
- a decline in real incomes
- a decline in consumer activity
- a deterioration in business expectations.
Thus, Europe may face the risk of stagflation—a situation where the economy weakens while prices rise.
Can the ECB raise rates?
Lagarde stated that the ECB is closely monitoring:
- wage trends
- inflation expectations
- energy prices.
The regulator has not yet decided on its future policy, but experts are already considering the possibility of an interest rate hike.
Analysts at S&P Global Ratings believe the ECB may take a tougher stance than during the previous inflation shock.
How the markets reacted
In response to the news:
- the euro strengthened by 0.5%
- European stock indices fell
- the price of Brent crude rose to $111 per barrel
- gas prices in Europe jumped by 13%.
The German DAX index fell by 2.39%, and the Euro STOXX 50 by 1.8%.
What’s next
The ECB stated that further decisions will depend on developments in the Middle East and the state of energy markets.
The next key ECB meeting is scheduled for April 30.
