FRANKFURT, Sept 1 (Reuters) – The spike in euro zone inflation since the start of the war in Iran has almost entirely been driven by higher energy prices, justifying the European Central Bank’s small increase in interest rates in June, new ECB research showed on Tuesday.
The ECB raised rates for the first time in nearly three years and is set to do so again next week as continued disruption to the Strait of Hormuz keeps gas and petrol prices elevated in the energy-importing euro zone.
A new blog post by ECB researchers compared the current spell of high inflation with the one that followed Russia’s full-scale invasion of Ukraine in 2022, using variables such as pandemic-related demand and supply imbalances, adverse energy supply shocks, as well as fiscal and monetary policy measures.
“Our estimates suggest that the current increase in headline inflation has so far, until end of May 2026, been driven almost entirely by adverse energy supply shocks,” economists Kristina Barauskaitė Griškevičienė and Claus Brand wrote.
By contrast, the 2021-22 bout of high inflation was also driven by monetary stimulus at first, and fiscal stimulus later on.
“This contrast supports the more measured policy response taken so far,” the blog said. “The response as delivered to date is consistent with the medium-term orientation of the ECB’s monetary policy and with financial market expectations.”
Most economists expected the war in Iran to end over the course of the summer.
(Reporting by Francesco Canepa; Editing by Sharon Singleton)
