Eurozone consumers expect persistent inflation after oil shock from Iran war

Consumers in the eurozone expect inflation to remain persistently high following the oil price shock triggered by the Iran war, the European Central Bank (ECB) said on Monday, citing a survey it commissioned.

On average in April, people expected an inflation rate of 4% over the next 12 months, the ECB said, dpa reports. 

Energy prices have risen sharply since the Iran war began on February 28, with consumers feeling the impact particularly through higher fuel prices at petrol stations.

"Uncertainty about inflation expectations over the next 12 months remained unchanged at an elevated level," the ECB said in a statement.

The survey also showed that inflation expectations remain elevated over the medium term. Consumers anticipate an average inflation rate of 2.9% over the next three years, down slightly from 3% in March.

The ECB aims for a medium-term inflation rate of 2% in the eurozone, which it considers its primary benchmark for price stability. Inflation in the eurozone rose to 3% in April, remaining above the central bank’s target.

The data adds to pressure on the ECB as financial markets increasingly expect the central bank to raise interest rates at its June 11 meeting.

Higher interest rates typically increase borrowing costs for households and businesses, which can reduce demand and help ease inflation. However, they also risk weighing further on the eurozone economy, which has already been affected by the economic consequences of the Iran war.

The ECB’s Consumer Expectations Survey is a monthly online poll of around 19,000 consumers across 11 eurozone countries, including Germany, Spain, France and Italy. The most recent survey was conducted between April 2 and May 4. The ECB uses the findings to complement other data sources in its monetary policy analysis.

By Sabina Mammadli