The Bank for International Settlements has published a working paper assessing how the Iran conflict could transmit higher energy costs into broader inflation in the euro area, the United Kingdom and the United States. Drawing on data available as of May 2026, the analysis estimates a cumulative inflation impact of roughly 1.5–2 percentage points over 2026–27. The effect could persist into 2027 but is expected to be smaller and shorter than the inflation surge of 2021–24. The gradual adjustment of prices that firms change infrequently accounts for an estimated 1.2–1.6 percentage points of the impact. Analysis using United Kingdom price data indicates that accumulated price pressures could accelerate transmission of the energy shock while making monetary tightening less effective than usual. Higher household and business inflation expectations could add another 0.3–0.4 percentage points in 2027 through spending, pricing and wage decisions. Evidence of additional amplification through fiscal policy remains inconclusive. Financial market measures, adjusted for trading frictions, indicate that the longer-term inflation anchor remains in place. The paper argues against either ignoring the shock entirely or repeating the aggressive monetary tightening of 2022. Its size and persistence warrant attention, but excessive tightening could cause unnecessary economic damage. The estimates combine evidence from different regions and are not forecasts. Further shocks, the course of the conflict and the monetary policy response will determine actual inflation outcomes.

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