Russia's invasion of Ukraine caused a sharp increase in energy prices, intensified concerns about stagflation, and exacerbated the already elevated inflationary pressures of the post-pandemic recovery. Moreover, the protracted conflict and subsequent geopolitical crises have created an environment of heightened macroeconomic uncertainty.
Even though there are significant differences in the economic consequences of the two conflicts, the war in Iran is likely to affect eurozone households' expectations through fairly similar channels. These include higher energy prices and heightened macroeconomic uncertainty. The most recent data from March 2026 show that inflation and growth expectations are largely sensitive to geopolitical conflicts.
Immediately after the outbreak of the war in Iran, the data reveal a pattern of heightened stagflation beliefs. A sharp increase in inflation expectations alongside a significant decline in growth expectations is evident after the outbreak of both conflicts.
In March 2026, one month after the outbreak of the war in Iran, consumers revised up their inflation expectations by about 2.5 percentage points. Many households now carry cumulative experience from the post-pandemic inflation shocks and those related to Ukraine. Research shows that both experience and memory can influence economic behavior.
We provide two pieces of evidence suggesting that the previous inflation surge and recent geopolitical conflicts negatively affect current consumer thinking. First, memories of the recent inflation episode have renewed consumers' attention to inflation. Second, data show that consumers continually fear that ongoing geopolitical risks will threaten their financial situation.
Recent research shows that trust in the ECB plays an important role in stabilizing inflation expectations. It also significantly moderates how households adjust inflation expectations in response to geopolitical conflicts and energy shocks. Central Bank data suggest that trust in the ECB has improved as inflation has fallen, with trust at a relatively higher level in February 2026 than in February 2022.
Overall, the evidence suggests that trust in the ECB acts as a stabilizing force against the destabilization of inflation expectations – therefore, maintaining credibility and effective communication remain essential, especially in unstable macroeconomic and geopolitical environments.
Olivier Coibion is a professor of Economics at the University of Texas
- The article is a summary of a more extensive analysis published on the ECB Blog
