ECB research in its Economic Bulletin finds euro-area households cut spending
after the outbreak of war in Iran, driven mainly by heightened geopolitical
uncertainty rather than faster inflation. Market confidence fell and the
consumption slowdown was concentrated in discretionary spending; nominal energy
outlays rose (reflecting higher transport costs) while housing and food spending
remained resilient. Reductions were largest among high-income households;
researchers say the nominal consumption drop appears driven by unconstrained
households postponing purchases due to uncertainty. Although price rises from
the Middle East conflict may have contributed, the effect remains after
controlling for real income and could become entrenched if households expect
conflict-related real income losses to be persistent.
