The chief economist of the European Central Bank (ECB), Philip Lane, considered that a prolonged conflict in the Middle East could lead to a persistent drop in energy supplies and a substantial increase in inflation in the euro zone.
In an interview with the Financial Times, Philip Lane recalled that the possibility of an escalation of the conflict in the Middle East has been one of the main risk scenarios contemplated by the BC, whose previous analyzes point to a “substantial energy-driven rise in inflation” and a sharp drop in production if a conflict caused a persistent drop in energy supplies.
Furthermore, for the Irish economist, the impact would be amplified if the situation also led to a reassessment of risk in financial markets.
In the case of the eurozone, Philip Lane recognized that an increase in energy prices puts “upward pressure on inflation”, especially in the short term, and a conflict of these characteristics would be negative for economic activity.
In any case, the chief economist stressed that the impact and implications for inflation in the medium term depend on the magnitude and duration of the conflictso the ECB will closely monitor developments in the situation.
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