ECB: inflation in the direction of 3.1%. Panetta: monetary stability in danger | EUROtoday

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The rise in power costs attributable to the conflict within the Middle East will push inflation “above 2% in the short term”, with a pointy rise to three.1% within the second quarter of 2026, adopted by a decline to 2.8% within the third quarter following the decline in power commodity costs implicit within the costs of futures contracts. The ECB writes this within the financial bulletin, which nonetheless incorporates the chance situations introduced by the ECB final week and warns: “the risks for the inflation outlook are oriented upwards, especially in the short term. The continuation of the war in the Middle East could lead to a more pronounced and lasting increase in the price of energy goods than currently expected, pushing inflation in the euro area to a further rise”.

“The latest available data is consistent with modest GDP growth in the first quarter of 2026.” However, with the outbreak of the conflict within the Middle East “the risks for growth prospects are oriented downwards, especially in the short term”, writes the ECB once more within the March financial bulletin, based mostly on information up to date to 18 March. If, earlier than the conflict, the world economic system confirmed “signs of resilience”, now “the experience of past adverse energy shocks suggests that the consequent erosion of real income and the deterioration of confidence could significantly weigh on private consumption” – writes the ECB – “the strength of these effects will depend on the intensity and duration of the conflict, as well as on its subsequent transmission”.

“It is estimated that the conflict will reduce world GDP growth in real terms by 0.4 percentage points over the next two years, reflecting the expected trajectory for the prices of energy raw materials”, notice the ECB specialists who underline how the influence of the conflict in Iran “has offset the positive carry-over effects deriving from the higher-than-expected growth at the end of 2025 and the moderate impulse provided by the decline in US tariffs”. The projections – we learn within the bulletin – point out that the rise in world GDP in actual phrases will fall from 3.6% in 2025 to three.3% in 2026, and can then stay steady, considerably unchanged in comparison with earlier projections”. Overall inflation measured on the global consumer price index has been revised upwards in the next two years, due to the shock on the prices of energy goods. “In the primary few months of this yr the influence inflationary power value will increase have been partially offset by lower-than-expected inflation information and the results of decrease tariffs.”

Panetta’s intervention

As for Italy, the governor of the Bank of Italy Fabio Panetta spoke today in his speech at the sixteenth annual Conference of the Bank of Italy and the Ministry of Foreign Affairs and International Cooperation. Panetta spoke about current geopolitical tensions, in particular the conflict in Iran. «Tensions on energy markets are worrying not only for the immediate impact on inflation and growth, but also for the possible repercussions on financial stability. In the presence of high volatility and uncertainty, pre-existing fragilities could transform into channels for amplifying shocks.”

«The image – underlined Panetta – is made extra delicate by the excessive ranges of public debt in lots of economies, which restrict the area for budgetary interventions and enhance the dangers for the monetary markets. Changes within the notion of threat by world traders can thus shortly translate into tensions on sovereign bonds and capital flows.”