Scenarios concerning the possible consequences of the Iran war for euro area inflation: Update July 2026

This note updates our March 2026 scenario analysis of the inflationary consequences of the energy-price shock associated with the Iran war. Using the same Bayesian VAR specification and posterior estimates, we incorporate observed energy prices through July 2026. Despite a different monthly price profile, the implications of the July baseline for euro area consumer prices are broadly similar to the March baseline. A significant share of the effect is still to materialize: relative to July, the contribution to year-on-year headline HICP rises by a further 0.6- 0.7 percentage points to a peak of around 1.75 percentage points in February 2027. The contribution to core HICP rises by about 0.4 percentage points to a peak of approximately 0.5 percentage points by mid-2027. By contrast, a scenario with "gradual normalization" would unwind most of the remaining headline pressure within a few months, whereas a "renewed supply disruptions" scenario with a temporary return of oil-product prices to their earlier peaks would add moderately to the July baseline. More persistent disruptions, however, could generate larger effects than the three-month scenarios considered here.