Christine Lagarde
European Central Bank President Christine Lagarde has issued one of her most direct warnings about the possible inflationary consequences of the ongoing conflict over Iran.
After Thursday’s ECB Governing Council meeting, which kept interest rates unchanged, Lagarde said the war had “significantly increased the uncertainty of the outlook” and would have a “meaningful impact on inflation in the short term.”
Energy shock at center of ECB’s updated inflation forecast
Lagarde emphasized that the war is creating “upward risks to inflation” primarily through the oil and gas markets, with an immediate impact on consumer prices, euronews wrote.
According to the latest forecasts of ECB specialists, inflation will average 2.6% in 2026, after which it will slow to 2.0% in 2027 and 2.1% in 2028. The upward revision of the forecast compared to previous estimates is largely due to higher energy prices associated with the conflict in the Middle East.
Core inflation, which excludes energy and food, is also expected to remain just above target over the forecast horizon, reflecting the indirect impact of higher energy prices spreading throughout the economy.
However, Lagarde made clear that this scenario assumes relatively limited disruptions to energy supplies.
In a more unfavorable scenario, involving more severe and prolonged disruptions to oil and gas supplies across the Strait of Hormuz, inflation could rise to 3.5 percent in 2026.
In a severe scenario, in which high energy prices persist longer, overall inflation could rise to 4.4% in 2026.
The ECB is particularly attentive to the so-called second round effects, where the initial energy shock goes beyond the cost of fuel and spreads to wages, services and core inflation.
“If the rise in energy prices proves sustainable, it could lead to a broader rise in inflation through indirect and secondary effects, which requires close monitoring,” Lagarde said.
Growth outlook revision: stagflation risks increase
Inflationary pressures from energy markets are manifesting themselves at the worst possible time for the eurozone economy.
The GDP growth forecast for 2026 has been cut to just 0.9% – barely above the brink of stagnation – as war pressures weigh on real incomes, business sentiment and consumer demand.
This leaves ECB policy in a more complicated configuration.
The same oil shock that threatens to stoke inflation is simultaneously expected to weigh on growth, eroding real incomes and undermining confidence.
Lagarde reiterated that a protracted conflict would simultaneously push inflation up and dampen economic activity, complicating the ECB’s response. She insists on a “meeting-to-meeting” approach, but analysts are already talking about raising rates
The ECB chief emphasized that regulators are closely monitoring key indicators, including wage developments, inflation expectations and the situation in energy markets.
“We make no prior commitment to follow any particular rate trajectory,” she said, adding that the ECB is ready to adjust its tools if necessary to ensure a sustained return of inflation to target.
Lagarde’s message was essentially one of wait-and-see caution: the bank has a toolkit, a system for analyzing data and – at least for now – room to wait and see before acting.
“It is unlikely that the ECB will be as patient this time as it was during the previous inflation shock,” warned Sylvain Breuer, chief EMEA economist at S&P Global Ratings.
This is a “hawkish turn” in ECB policy, said Roman Ziruk, senior market analyst at global financial services firm Ebury.
“The ECB is more likely to raise rates rather than cut them this year; a cut now appears to be off the table,” he said.
“The rules of the game have changed. Heightened geopolitical tensions have changed the outlook, reopening the possibility that a return to higher interest rates is back on the agenda,” said Joe Nellis, professor of global economics at Cranfield Business School and advisor to MAH.
The NBM is acting similarly
The National Bank of Moldova (NBM) also took a wait-and-see stance and did not raise the prime rate, keeping it at 5% per annum this week. At the same time, it did not present similar scenarios for Moldovan inflation, saying that it will closely monitor prices, noting the risks from external factors and low economic activity.
According to the NBM, “a slight increase in international food prices” is expected in 2026 and 2027. At the same time, they warn: “the reduction of fertilizer supply on the world market as a result of existing regional conflicts will determine the increase in costs in agriculture, especially next year”.
Inflation in the Eurozone and Moldova
In February 2026, inflation in the eurozone accelerated to 1.9% year-on-year (from 1.7% in January), while in Moldova it amounted to 5.06%-5.1%, remaining within the National Bank’s target. The main factors of growth were the rise in prices of services in the EU and foodstuffs in Moldova.
The leaders of price growth in the EU are Romania (8.3%), Slovakia (4%), Croatia (3.9%). The lowest inflation is Denmark (0.5%), Cyprus (0.9%) and Czech Republic (1%).
The inflation rate in Moldova in February 2026 was slightly higher than expected by the central bank, despite the disinflationary impact of aggregate demand on prices. And this growth started even before the onset of the Middle East events.
By structure, the annual inflation rate in February was mainly due, according to the NBM, to “the increase in food prices, core inflation and fuel prices, partially compensated by the decrease in regulated prices”.
Food products rose in price by 6.9% (eggs, vegetables, fish). Non-food products showed an increase of 1.9%, mainly due to higher prices for cigarettes and textiles. Annual growth in the cost of services slowed to 7% (down from 7.2% in January). Consumer prices in February increased by 0.5% against January.
Forecast for 2026 updated
The NBM had expected a moderate decline in inflation in early 2026. However, in March, the bank recognized deviations from the forecast published in February due to rising energy prices amid geopolitical tensions.
The annual average forecast for 2026 has been updated. According to the latest revised data (February-March 2026), average annual inflation is forecast at 5.0% (previously expected 4.3%).
