Key facts
- Euro zone inflation will remain above 3% for the rest of the year.
- Inflation will stay above the 2% target into next year.
- The current inflation shock is not excessively large or persistent.
- A measured policy response is required for inflation.
- It is difficult to argue against the ECB's recent rate hike.
- An Iran nuclear deal is unlikely to significantly ease inflation concerns.
- Any potential increase in oil supply from an Iran deal will have a minimal impact on global prices.
- Central banks are not expected to see significant inflation relief from an Iran deal.
Euro zone inflation is expected to remain above 3% for the remainder of the year and continue into next year, staying above the European Central Bank's (ECB) 2% target. ECB Chief Economist Philip Lane characterized the current inflation shock as not excessively large or persistent, but emphasized that a measured policy response is required. Lane also commented on the ECB's recent decision to raise borrowing costs, stating that it is difficult to argue against the move, implying it was justified. In a separate development, an Iran nuclear deal is unlikely to offer substantial inflation relief for central banks. The potential increase in oil supply resulting from such a deal is anticipated to have a minimal impact on global oil prices and, consequently, on inflation rates. Therefore, central banks are not expected to see significant easing of inflation concerns from this particular geopolitical event.