ECB Official Says Post-Iran Conflict Rise in Inflation Was Foreseen

European Central Bank Governing Council member Boris Vujcic told reporters in Zagreb that the jump in inflation expectations following the outbreak of the Iran war was anticipated by the ECB. He warned that a prolonged conflict or heavier damage to energy infrastructure would add upward pressure on energy prices and, in turn, consumer inflation. ECB officials are reviewing outlooks from households, businesses and investors as they weigh responses to rising energy costs that helped lift euro-area inflation sharply in March.

Key Points

ECB member Boris Vujcic said the rise in inflation expectations following the Iran war was expected by the central bank.
Prolonged conflict or increased damage to energy infrastructure would likely increase energy prices and push up inflation.
ECB officials are examining price outlooks from consumers, firms and investors as they decide how to respond; incoming data and news will influence any decision ahead of the April meeting.

European Central Bank Governing Council member Boris Vujcic said on Tuesday that the rise in inflation expectations after the outbreak of the Iran war had been anticipated by the central bank.

Speaking to reporters in Zagreb, the Croatian official said: "This is what we have expected, what we have said - that inflation is certainly going to rise in connection to events in Iran."

Vujcic emphasized that a lengthier conflict or greater damage to energy infrastructure would likely push energy prices higher, a dynamic that would translate into broader inflationary pressure.

Officials at the ECB are reviewing price outlooks from consumers, firms and investors as part of their assessment of how to respond to rising energy costs. Those energy costs were a driver of the sharpest increase in euro-area inflation since 2022 in March, according to the central bank's assessment.

Some policymakers within the ECB have signaled that an interest rate increase could be necessary as soon as next month. When asked about the probability of a rate rise at the next policy meeting, Vujcic declined to offer a view on its likelihood.

He said: "Nothing is certain, there will be a lot of data and news by the time of our meeting in April." The comment underscored that upcoming indicators and developments will shape the council's decision-making process.

Context and implications

Vujcic's remarks underline that the ECB had factored in geopolitical risks tied to the Iran conflict when assessing inflation expectations. The central bank is actively monitoring how shifts in energy prices could ripple through consumer and business price expectations and financial market pricing.

Key areas under scrutiny include:

Price outlooks from consumers, firms and investors used by ECB officials to gauge inflation trajectories.
Energy-price developments and any escalation of damage to energy infrastructure that could heighten inflationary pressures.
Incoming economic data and news flow ahead of the ECB's April meeting, which will inform policy deliberations.

Vujcic's public remarks reiterate the central bank's stance that responses to recent inflation movements will remain conditional on evolving data and developments rather than pre-committed actions.

Risks

Prolonged conflict in Iran could cause greater damage to energy infrastructure, increasing energy prices and raising inflationary pressure - this primarily affects the energy sector, consumer prices, and broader euro-area inflation.
Uncertainty in data and news flow before the ECB's April meeting means policy outcomes are unclear, creating potential volatility for financial markets, borrowers and savers.
Rising energy costs have already driven the sharpest increase in euro-area inflation since 2022 in March, posing risks to household purchasing power and corporate input costs.

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Key Points

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