European Central Bank Chief Economist Philip Lane warned that the inflation impact from the Middle East conflict is likely to persist even if a quick diplomatic resolution is reached. Speaking at a conference hosted by the Bank of Japan and its think tank in Tokyo, Lane said policymakers are concerned that energy-driven price pressures may continue feeding through the broader economy long after the initial oil shock fades.
“Even if the initial energy shock starts to reverse, the second round effect will be with us for a while,” Lane said. He argued that the conflict could leave lasting structural effects on supply chains and global energy strategy, warning that “even if Iran war sees resolution, prolonged conflict could prompt shifts in optimal diversification strategy.”
Lane’s remarks add to increasingly hawkish messaging from senior European Central Bank officials this week as markets prepare for a likely June rate hike. Policymakers are becoming more focused on preventing higher energy costs from feeding into wages, pricing behavior, and broader inflation expectations across the Eurozone economy. The comments also suggest that even a reopening of the Strait of Hormuz may not quickly reverse the inflation pressures already embedded into Europe’s economic outlook.
