Middle East conflict raises short-term inflation expectations
Business leaders in France revised their short-term inflation expectations upwards following the outbreak of the Middle East conflict on February 28, 2026. A Banque de France survey found longer-term expectations were less affected.
Short-term outlook shifts rapidly
The Middle East conflict, starting February 28, 2026, coincided with the Banque de France's survey on firms' inflation expectations (Feb 25 - Mar 4, 2026, 1,500 responses), offering a real-time view of business leaders' reactions.
Prior to the conflict, short-term expectations were declining, consistent with inflation moderation in late 2025 and early 2026, falling below 2 percent.
Post-conflict, from March 2, these expectations rose sharply, approaching 2.5 percent.
The median response increased by 0.5 percentage points, from 1.5 percent to 2 percent.
Econometric analysis showed an average increase of 0.4 percentage points, reaching 0.7 percentage points by March 3. Perceptions of current inflation remained unchanged, indicating an anticipation of future price changes.
Uncertainty grows, long-term views anchored
The conflict significantly heightened business leaders' uncertainty, reversing a prior decline and raising concerns over energy prices and supply chain disruptions.
This was reflected in a wider dispersion of one-year inflation expectations: responses of 4 percent or more rose from 5 percent to nearly 15 percent.
Conversely, longer-term inflation expectations (3-5 years) reacted less strongly, with a statistically insignificant increase of 0.1 to 0.3 percentage points, suggesting they remained well anchored.
Firms also did not revise their expectations for future wage growth, indicating no immediate second-round effects from rising raw material prices.
A contained, not transformative, shock
The study highlights the immediate, yet contained, sensitivity of short-term expectations to geopolitical shocks.
While uncertainty surged, the stability of long-term inflation and wage expectations is a crucial sign of resilience.
This suggests that the current conflict, unlike past events, has not fundamentally de-anchored broader inflation dynamics in France.