Inflation surge. Interest rate reversal?

The escalation of the conflict, with the direct involvement of Iran and other Gulf countries, is influencing expectations on interest rates. Tensions in the region are pushing up oil and gas prices and risk disrupting global supply chains, with potential effects on inflation. Central banks may be forced to reverse their monetary policy stance, although at its meeting on March 18, 2026, the European Central Bank—referring to the conflict in the Middle East and in line with what the Fed did the previous day—kept interest rates unchanged. The outlook for interest rates will depend on the intensity and duration of the conflict in Iran and on how energy prices feed into overall inflation.
In fact, an increase in oil prices translates into higher costs for consumers and businesses, with the consequent risk of rising inflation. This could lead central banks to revise interest rates upward. In this regard, in recent days ECB staff have outlined several possible future scenarios. In the worst-case scenario, which the ECB defines as “severe,” GDP growth in 2026 would be reduced to 0.4%, compared to 0.9% in the baseline scenario already announced and 0.6% in the intermediate scenario, defined as adverse. In the extreme scenario, inflation could jump to 4.4%, compared to 2.6% in the baseline scenario and 3.5% in the intermediate one. The severe scenario assumes a stronger and more persistent energy price shock than in the baseline scenario, greater uncertainty, and even more intense indirect and second-round effects. In the United States, the Fed could respond as early as its next meetings with more aggressive approaches to counter an increasingly likely rise in inflation. For now, the policy of cutting interest rates appears to have been set aside. Kìron Partner – Copyright