ECB warns Iran war could accelerate eurozone inflation

The ongoing conflict between the US, Israel and Iran could have a significant impact on the eurozone economy. European Central Bank (ECB) chief economist Philip Lane warned the Financial Times that the sharp rise in oil prices – currently more than 10 per cent – is putting upward pressure on inflation, particularly in the short term.

At the same time, he cautioned that a lasting disruption to energy supplies from the region would have more serious consequences – higher inflation and a sharper slowdown in economic activity.

According to the ECB’s December analysis, persistently elevated oil prices could lift inflation by half a percentage point and slightly dampen growth.

Inflation currently stands at 1.7 per cent, below the bank’s 2 per cent target, suggesting that any increase in prices would not necessarily trigger monetary policy intervention for now.

In addition, the ECB traditionally focuses on long-term inflation expectations, which have so far remained broadly unchanged.

(reuters, pir)