ECB Warns of 6.3% Inflation by 2027 in Worst-Case Iran War Scenario

• The European Central Bank (ECB) projects euro-zone inflation could hit 6.3% by early 2027 under a severe escalation of the Iran war.
• This worst-case scenario involves prolonged energy supply disruptions and infrastructure damage, potentially leading to a short recession in the 21-nation bloc.
• ECB President Christine Lagarde noted that inflation risks are now tilted to the upside, while growth risks are skewed to the downside.
• Despite holding interest rates steady, the ECB's new projections signal a clear shift in tone, highlighting increased risks to prices and a weakening growth outlook.
• Financial markets are already pricing in rate hikes, with major brokerages expecting tightening to begin as early as April and continue through mid-2026.