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Energy shocks fade. Their echo does not.
20/03/2026
When prices jump, households adjust fast. Their expectations do not.
The Iran war has revived an old fear: that disruption around the Persian Gulf – and especially the Strait of Hormuz – could once again push up energy costs and, with them, the cost of living. Markets tend to fixate on extreme scenarios. At least as important, however, is understanding how such shocks influence expectations. The war in Ukraine offers a useful reference point.
Our Chart of the Week uses survey data collected for the European Central Bank each month to track households’ inflation expectations for the subsequent 12 months in France, Germany, Italy and Spain.[1] The picture is striking. Triggered by Russia’s invasion of Ukraine, food and energy prices jumped. Subsequently, inflation expectations surged across all four countries in 2022, with Italy showing the sharpest spike. They then only slowly retreated. The shock passed. The imprint remained.
The mechanism is simple. Consumers notice petrol, heating and supermarket prices quickly. But they do not forget them as swiftly. In other words, inflation expectations behave less like a switch than like a bruise: quickly painful, slow to heal. Evidence from the U.S. suggests that the drag from inflation on consumer sentiment fades only gradually, not all at once.[2]
That matters now because impaired Gulf shipping routes are not only an oil story. Disruption there also raises transport and fertilizer costs, which can seep into food prices and broader living costs.[3] There is also a regional twist: in Europe and Asia, the vulnerability now runs as much through gas and electricity pricing as through crude itself.[4] “What matters is not just whether energy prices rise again, but how long that rise stays lodged in consumers’ minds. This makes the task for central banks all the trickier,” argues Ulrike Kastens, Senior Economist at DWS. Markets may move on quickly. Households usually do not. That leaves central banks in an awkward spot: alert to second-round effects, but wary of overreacting to shocks they cannot control.
Eurozone consumer inflation expectations for the subsequent 12 months
Sources: Haver Analytics Inc., European Central Bank as of 3/17/26
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