Capital Economics: Recent increase in oil prices poses stagflation risks to the Eurozone.

Economists Andrew Kenningham and Jack Allen-Reynolds of Capital Economics said in a report that the surge in energy prices since the military actions in the Middle East over the weekend is a mild stagflation shock for the Eurozone. They stated that this shock will slightly reduce the likelihood of a rate cut by the European Central Bank. "If this trend continues, it will increase inflation by about 0.3 percentage points, and economic activity will weaken slightly," they said. However, the Iran conflict has not significantly changed the outlook for monetary policy, as the threshold for policymakers to adjust interest rates remains high. They stated that if the price of Brent crude oil rises to $100 per barrel and Dutch TTF natural gas futures rise to 50 per megawatt-hour, overall inflation will increase by about 1 percentage point.