Eurozone: Energy shock risks and softer inflation dynamics – BNP Paribas

BNP Paribas analysts assess how the new energy shock from war in Iran and higher Oil and gas prices compares with 2022 for the Eurozone. They argue the current backdrop is less inflationary, with weaker demand and fewer supply constraints, and central banks now more reactive. Early March 2026 data show limited pass-through beyond energy, though risks remain.

Comparing 2026 energy shock with 2022

"Will the same causes produce the same effects? In other words, will the outbreak of war in Iran and the associated surge in oil prices (+44% to date) and gas prices (+64%) lead to an inflationary shock comparable to that of 2022? Will their negative effects on growth be the same as those of the war in Ukraine and the ensuing energy shock (a rise in oil prices of around 30% between 23 February and its peak in early June 2022, and a rise in gas prices of around 210% between 23 February and the peak in late August 2022)?"

"Today, the surge in inflation is likely to be less severe: demand is less robust and supply constraints have eased. Therefore, the conditions do not appear to be in place for a significant spillover of rising energy prices. But this will need to be monitored closely."

"Moreover, central banks have learnt lessons from the inflationary shock of 2021–2023. They are ready to react more swiftly to counter any spillover, spiral and second-round effects between rising prices, inflation expectations and wages."

"The improvement in the manufacturing PMI in March 2026 is one of the positive signals, as is the absence of a rise in the ‘output price’ component, and the fact that the deterioration in household sentiment regarding their financial situation was more limited than in March 2022."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)