BIS paper finds Iran war could raise euro area, UK and US inflation by 1.5-2 percentage points in 2026-2027

A BIS working paper analyzes the inflation impact of the Iran conflict as of May 2026, projecting that energy supply disruptions will push up inflation in the euro area, UK and US by 1.5–2 percentage points through 2026 and 2027. Most of the rise stems from higher energy costs feeding into goods and services prices, with inflation expectations potentially adding a further 0.3–0.4 percentage points. While long-term inflation expectations remain stable, the paper notes fiscal policy effects are unclear and warns that ignoring the shock may allow persistence, while aggressive rate hikes risk unnecessary economic damage.