Geopolitical wars leave scars on consumer expectations

Russia's invasion of Ukraine triggered a sharp rise in energy prices, intensified concerns about stagflation and exacerbated the already elevated inflationary pressures of the post-pandemic recovery.

The war in Iran is likely to influence euro area households' expectations through similar channels, including higher energy prices and reinforced macroeconomic uncertainty.

Recent CES data from March 2026 show that consumer inflation and growth expectations are highly responsive to geopolitical conflicts.

Following the Iran war, consumers revised their mean inflation expectations upwards by about 2.5 percentage points and growth expectations down by 1.2 percentage points.

This shift towards a more stagflationary outlook is, so far, somewhat less pronounced than after Russia's invasion of Ukraine, but started from a higher baseline for medium-term inflation expectations in January 2026 compared to January 2022.

Many households now carry cumulative experience from post-pandemic and Ukraine-related inflation episodes, creating a 'double scar'.

This amplifies consumers' sensitivity to new shocks, making stagflationary scenarios more pronounced and persistent in their beliefs.

Evidence suggests renewed consumer attention to inflation; almost half of surveyed consumers paid attention to prices in January 2023 (8.6% inflation), a share that only modestly declined to 41% by August 2025.

Following the Iran war, attention to prices bounced back to almost 50% in March 2026, indicating a quick recall of earlier conflict-driven inflation.

Consumers also continuously fear that ongoing geopolitical risks threaten their financial situation, with concerns remaining elevated before the new conflict.