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A \u201cdouble scar\u201d of past inflation woes and geopolitical trauma is warping how consumers view the economy and threatening a drop-off in retail spending, new research from the European Central Bank showed.<\/p>\n
According to ECB researchers, euro area households have become more sensitive to the financial consequences of the Iran war due to cumulative economic wounds left behind by the post-pandemic inflation surge and the 2022 invasion of Ukraine, which resulted in soaring energy prices.\u00a0<\/p>\n
\u201cThere is good reason to believe that consumer expectations are shaped not only by current developments, but also by memories of these recent adverse events,\u201d they wrote in a blog post<\/a> published on Friday, warning that these mental \u201cscars\u201d reinforce fears of stagflation \u2013 when rising prices coincide with declining growth.\u00a0<\/p>\n Data from the ECB\u2019s March 2026 Consumer Expectations Survey showed that consumers had sharply revised inflation expectations upwards by 2.5 percentage points just one month after the conflict in the Middle East broke out in late February. Simultaneously, economic growth expectations fell by about 1.2 percentage points.<\/p>\n