Rehn Warns Euro Area Faces Stagflation as Inflation Hits 3% After Iran War
Updated
Updated · Bloomberg · May 13
Rehn Warns Euro Area Faces Stagflation as Inflation Hits 3% After Iran War
2 articles · Updated · Bloomberg · May 13
Euro-area data are showing the first signs of a stagflationary shock, ECB policymaker Olli Rehn said, pointing to the economic fallout from the Iran war and higher energy prices.
First-quarter growth was only slightly positive while inflation accelerated to 3%, Rehn said, arguing that the combination already appears in official statistics.
Rising energy costs are the main transmission channel in his warning, threatening to weaken activity even as price pressures intensify across the currency bloc.
The remarks sharpen concern that the ECB could face a harder trade-off if the conflict-driven energy shock keeps growth weak and inflation elevated.
With stagflation looming, can Europe’s central bank fight inflation without crashing the economy?
The Iran war is crippling Europe's economy. Is a faster green energy transition the only way out?
Euro Area Faces 2026 Stagflation: Energy Dependency, Inflation Risks, and Policy Dilemmas Amid Iran War
Overview
The Euro Area is facing a serious economic crisis, with stagflationary pressures mounting due to the ongoing Iran war and its major impact on global energy markets. This conflict has caused a sharp increase in energy prices, especially natural gas, which surged by over 40%. As a result, rising energy costs are quickly being passed on to both consumers and businesses, exposing structural weaknesses in the European economy. Policymakers now face a challenging environment, as these energy shocks make it harder to balance inflation control with supporting economic growth, highlighting the region’s vulnerability to external disruptions.