ECB Survey: Euro Zone Firms Warn of Fresh Inflation Surge if Iran War Continues
Euro Zone Inflation Risks and ECB Policy Response
Survey Findings: Inflation Fears Amid Iran Conflict
FRANKFURT, May 4 (Reuters) - Euro zone firms see the risk of a new inflation surge akin to that seen after the COVID-19 pandemic if the war in Iran lasts months, disrupting the supply of fuel, hydrogen and helium, a European Central Bank survey showed on Monday.
ECB's Recent Policy Decisions
The European Central Bank left interest rates unchanged last week but debated a hike to combat soaring inflation and signalled that it may start raising borrowing costs in June.
Industry Impact: Sectors Most Affected
The ECB's quarterly survey of large companies found that those operating in air travel, logistics, chemicals, plastics and packaging industries had already raised their prices, often by double-digit percentages, or announced hikes, reflecting a surge in oil prices since the conflict started.
Pass-Through Effects and Hedging Strategies
But a broader pass-through to other prices, which is more relevant for ECB policy, was likely to be more gradual than at the time of Russia's invasion of Ukraine in 2022 because large companies had protected themselves against energy price swings.
"This hedging should limit the impact somewhat in the short term, as the pass-through of higher energy prices for these firms was less direct, coming mainly or only via smaller, unhedged suppliers seeking higher input prices," the ECB said.
Potential Consequences of Prolonged Conflict
Risks of Extended Disruption
If the war and the associated disruptions to the Strait of Hormuz were not resolved soon, however, companies saw the risk of a new burst of inflation similar to that seen in 2022-23, the ECB said.
"A conflict lasting months rather than weeks – with the Strait of Hormuz remaining blocked and/or further attacks on oil and gas infrastructure – would result in global shortages not only of fuel but also of many products requiring oil derivatives for their manufacture," the ECB said, citing hydrogen and helium.
Mitigating Factors Compared to Post-Pandemic Period
As mitigating factors compared to the post-pandemic period, the ECB cited weak global demand, especially from China, the absence of an expected boom in services and a lower level of economic stimulus from fiscal spending.
Survey Methodology
The ECB interviewed 67 companies outside the financial sector, mainly between 23 March and 1 April.
(Reporting by Francesco Canepa; Editing by Kevin Liffey)
