Iran war drives eurozone inflation fears

Consumers in the eurozone expect inflation to remain persistently high as a result of the oil price shock triggered by the Iran war, the European Central Bank (ECB) said on Monday, citing a survey it commissioned. On average in April, people expected an inflation rate of 4 over the next 12 months, the ECB said. Energy prices have risen sharply since the Iran war began on February 28, with consumers feeling the impact particularly through higher fuel prices at petrol stations. Uncertainty about inflation expectations over the next 12 months remained unchanged at an elevated level, the ECB said in a statement. The survey also indicated that consumers expect elevated inflation over the medium term. They anticipate an average inflation rate of 2.9 over the next three years, down from 3 in March. The ECB aims for a medium-term inflation rate of 2 in the eurozone, which it regards as the primary benchmark for ensuring a stable euro. The Iran war has pushed eurozone inflation to 3 in April, well above the ECB's target. The central bank is therefore under pressure to act. Financial markets expect the ECB to raise interest rates for the first time this year at its June 11 meeting. Higher interest rates would make borrowing more expensive for consumers and businesses, which could dampen demand and ease inflation. However, higher rates would also be a burden for the already weak eurozone economy, which is already suffering from the consequences of the Iran war. The ECB's consumer survey - the Consumer Expectations Survey - is a monthly online poll of around 19,000 consumers from 11 eurozone countries, including Germany, Spain, France and Italy. The most recent survey was conducted between April 2 and May 4. The ECB uses the results to supplement other data sources in its monetary policy analyses.