De Nederlandsche Bank has published research finding that major geopolitical shocks tend to increase inflation because supply disruptions generally outweigh weaker demand. Inflation rises by 0.3 percentage points over 20 months following such a shock, while industrial production falls by 0.6 percentage points after three months. The analysis covers events including the Sept. 11 attacks and the wars in Iraq and Ukraine. The effects are stronger at the upper end of the inflation distribution. After 12 months, inflation increases by 0.6 percentage points in a very high inflation scenario, compared with about 0.3 percentage points in a very low inflation scenario. This widening range increases uncertainty, which the research identifies as a predictor of higher inflation over subsequent months and years. For monetary policy, De Nederlandsche Bank warns against automatically looking through supply driven price increases when geopolitical tensions persist and inflation is rising, as higher inflation expectations can feed into wages and prices. Because the effects depend on the type and duration of a conflict, central banks should assess adverse and benign scenarios alongside their baseline forecasts. The European Central Bank applied this approach in its latest projections by considering different paths for the conflict in Iran and energy prices.
Source: 2026-09-29De Nederlandsche Bank
De Nederlandsche Bank research finds geopolitical shocks lift inflation and widen upside risks
De Nederlandsche Bank research finds that geopolitical shocks raise inflation by 0.3 percentage points over 20 months and increase uncertainty around future prices. The effect reaches 0.6 percentage points after 12 months in a very high inflation scenario. Persistent tensions may therefore require a monetary policy response rather than a decision to look through supply driven price increases.