ECB warns consumer sensitivity rises after Iran conflict

New research from the European Central Bank indicates that consumers in the eurozone are reacting more quickly and sharply to the economic upheaval caused by the conflict involving Iran, potentially deepening and accelerating the economic impact across Europe. The findings, published on Friday, suggest households are still psychologically scarred by the previous crisis triggered by Russia’s invasion of Ukraine.

According to the ECB’s analysis, which drew on its Consumer Expectations Survey, consumers immediately increased their attention to price changes when the conflict began, even though inflation was near the bank’s 2 percent target. Nearly half of surveyed respondents reported paying close attention to price changes in March, a proportion similar to that seen during a period of much higher inflation in early 2023. Researchers described this as evidence of a "potential double scar" from the consecutive crises.

The economists stated that such scars, or memories of financial stress, can heighten consumer sensitivity to new shocks. This dynamic makes scenarios of stagflation—rising prices alongside declining growth—more pronounced in public belief and could reinforce...