Iran Conflict Keeps Eurozone Inflation Above Target
The ongoing conflict in Iran has led to a 'war of attrition' that is keeping inflation above target in the eurozone, according to Joachim Nagel, an ECB policymaker.
Nagel warns that even if the shooting stops, the war could continue to affect prices due to its persistence. He notes that oil and gas prices have risen less than after Russia's invasion of Ukraine, but firms' own expectations of input costs and selling prices jumped immediately after the war began, embedding the shock into contracts and wages.
The Financial Times reported this week that a war of attrition in Iran could keep inflation high for longer. This is echoed by Nagel's own caution that a ceasefire would not quickly translate into cheaper energy.
Brent crude changed hands near $89 a barrel this week, and Nagel renewed his warning that peace may not refund Europe's price tags. He has been the most explicit in warning of high inflation, telling CNBC in June that it could linger even if the war ends, and arguing on Bloomberg in March that inflation risks now outweigh growth concerns.
The conflict is having a ripple effect beyond the eurozone, with Kenya importing the bulk of its petroleum through Mombasa. The Energy and Petroleum Regulatory Authority's cap for 15 August to 14 September sets Nairobi super petrol at KES 214.03 a litre, after the landed cost of super petrol rose 7% in July alone.