The European Central Bank has a new headache, and it smells like crude oil. The ongoing Iran conflict, triggered by US and Israeli military strikes on February 28, has pushed oil prices above $120 per barrel, and the ECB is now openly warning that the war could lift medium-term inflation expectations across the euro area.
The numbers tell the story
The ECB’s SAFE survey, conducted between February 19 and April 1, captured the shift in real time. Firms across the euro area raised their one-year inflation expectations from 2.5% to 3.0%. That half-percentage-point jump might look modest on paper, but in central banking terms, it’s the equivalent of a fire alarm going off in a library.
Medium- to long-term expectations, for now, remain stable. That distinction matters enormously. If businesses start pricing in persistently higher inflation over five or ten years, the ECB’s entire policy framework gets significantly more complicated.
The Harmonized Index of Consumer Prices, the ECB’s preferred inflation gauge, hit 3% in April 2026. Energy prices were the primary culprit. The ECB had already revised its euro-area inflation forecast for 2026 to 2.6%, but actual readings are already overshooting that number.
