Economists Warn of Stagflation Risks in Eurozone Amid Energy Price Surge

Economists Andrew Kenningham and Jack Allen-Reynolds from Capital Economics have highlighted concerns over a potential stagflation shock in the Eurozone due to rising energy prices following recent military actions in the Middle East. According to Jin10, the economists suggest that the surge in energy prices slightly reduces the likelihood of the European Central Bank (ECB) cutting interest rates. They note that if the price increases persist, inflation could rise by approximately 0.3 percentage points, while economic activity may weaken slightly. Despite these developments, the conflict in Iran has not significantly altered the monetary policy outlook, as the threshold for policymakers to adjust interest rates remains high. However, the economists also mention that if Brent crude oil prices reach $100 per barrel and Dutch TTF natural gas prices climb to €50 per megawatt-hour, overall inflation could increase by about 1 percentage point.