Europe faces its next big problem: The Iran war is driving up inflation
politico.eu • • business
Key Points:
- Eurozone inflation surged to its highest level in over a year in March, driven primarily by soaring fuel prices linked to a conflict blocking a critical global sea lane.
- The European Central Bank (ECB) faces a dilemma: raising interest rates to combat inflation could worsen economic challenges caused by high energy costs.
- Governments struggle to balance demands for consumer protection against the financial strain of providing subsidies amid already high energy prices.
- Core inflation excluding energy and food prices has slowed, but overall inflation is expected to peak above 3 percent, potentially exceeding 4 percent if the conflict escalates.
- ECB officials caution against premature rate hikes due to supply-side shocks but warn they will act if businesses raise prices opportunistically or wage demands rise; the ECB is likely to keep rates steady until at least April 30, with possible tightening later in the year.
