In an ECB blog post, the authors assess how the renewed energy shock linked to the Middle East war and the closure of the Strait of Hormuz is feeding into euro area inflation. They note that headline inflation rose to 3.2% in May, but argue that the broader pass-through to underlying inflation may be more limited than after Russia’s invasion of Ukraine in 2022 because the euro area starts from a more balanced macro-financial position, with inflation previously near target, weaker demand, a less tight labour market and a broadly neutral fiscal and monetary policy stance. The post highlights that the current shock is centred more on oil than gas, with faster transmission to fuel prices but less pressure on wholesale gas and electricity than in 2022. Structural changes in the energy mix, including a larger role for renewables and nuclear, are cushioning electricity prices. At the same time, the shock is more global, which could amplify import and value-chain cost pressures. Compared with 2022, firms now face softer demand and fewer supply bottlenecks, labour demand has eased, the job vacancy rate fell to 2.2% in the first quarter of 2026, and wage pressures have moderated. Fiscal space is also tighter despite similar headline deficits, with a structural fiscal deficit of 3.3% of GDP in 2026 versus 2.6% projected for 2022 and higher refinancing costs, leaving less room for broad support measures or price caps. The authors conclude that the inflation effects of the current shock require close monitoring. They flag two main upside risks in particular: the global nature of the oil shock, especially if it becomes larger or more persistent than expected, and the possibility that households and firms react more strongly because of their recent experience of high inflation.
European Central Bank2026-06-03
European Central Bank analysis finds the 2026 energy shock may pass through less strongly to euro area inflation than in 2022 but global oil risks remain
The European Central Bank, in a blog post, assesses how the renewed energy shock linked to the Middle East war and the closure of the Strait of Hormuz is feeding into euro area inflation, noting headline inflation rose to 3.2% in May but that pass-through to underlying inflation may be more limited than after Russia’s 2022 invasion given a more balanced backdrop. The authors highlight that the current shock is more oil-focused, partly cushioned by changes in the energy mix and softer demand, but emphasise tighter fiscal space and identify upside inflation risks from a larger or more persistent global oil shock and stronger reactions by households and firms.