The ECB said in a blog a war involving Iran could push euro-area consumers'
medium-term inflation expectations higher, strengthening the case for further
rate hikes. It noted the 2022 Russia-Ukraine invasion and earlier geopolitical
tensions left a "double hit" that has raised the probability households expect
faster future price rises; policymakers are concerned energy-cost shocks could
feed through into wages and corporate pricing. Short-term inflation expectations
have risen markedly while medium-to-longer-term expectations have changed
little. Markets largely price a 25bp ECB hike in two weeks; euro-area inflation
is 3% and likely to pick up, and the ECB flagged the risk that short-term
expectations may be extended into the medium term, creating upside risk to
medium-term expectations.
