Recent analyses from BNP Paribas and Wells Fargo highlight the significant impact of rising energy prices, driven by the conflict in Iran, on inflation dynamics in both the Eurozone and the United States. BNP Paribas analysts note that in the Eurozone, weaker demand since mid-2024 has played a dominant role in reducing inflation, allowing it to return to the European Central Bank's (ECB) 2% target. However, supply constraints remain above historical averages, preventing inflation from falling below this target. In March, harmonised inflation in the Eurozone rose by 0.6 percentage points to 2.5% year-on-year, attributed solely to higher fuel prices. BNP Paribas warns that the ongoing conflict in Iran could further exacerbate supply constraints, as reflected in rising input price indices in business climate surveys [1].
In contrast, Wells Fargo economists report that the Iran conflict and higher oil prices have reversed the recent disinflation trend in the United States. They project headline PCE inflation to peak at 3.7% year-on-year in Q2, with core PCE inflation expected to remain in the 2.7–3.1% range through 2026. The energy shock is anticipated to spill over into other categories such as airfares and food, with moderating shelter inflation and the unwinding of tariff-related pressures only partially offsetting these effects. Wells Fargo now expects core PCE inflation to end 2024 at 2.8% on a Q4-over-Q4 basis, marking an end to the gradual disinflationary trend observed over the past two years [2].
Both sources emphasize the market-moving implications of the energy shock. In the Eurozone, the risk is that inflation could rise again if supply constraints worsen due to geopolitical tensions, while in the US, the disinflationary environment has already been disrupted, with inflationary pressures expected to persist across multiple sectors [1][2].
Forward-looking statements from both BNP Paribas and Wells Fargo suggest that energy-driven inflation risks remain elevated, with the potential for further upward pressure on prices if the Iran conflict continues or escalates. BNP Paribas specifically highlights the possibility of a resurgence in supply constraints, while Wells Fargo anticipates that energy costs will continue to influence inflation metrics through at least 2026 [1][2].
CONCLUSION
Both the Eurozone and US are experiencing renewed inflationary pressures due to rising energy prices linked to the Iran conflict. While weaker demand has helped the Eurozone contain inflation, the US faces a reversal of its disinflation trend, with inflation expected to remain elevated. Market participants should remain alert to further developments in energy markets and geopolitical tensions, as these factors are likely to shape inflation trajectories in the near term.