Top central banker thinks businesses may be quicker to raise prices due to Iran war

[AP Photo]

The head of the European Central Bank says that businesses may be quicker to raise prices in response to the oil shock from the Iran war due to bitter memories of the inflation spike after Russia’s invasion of Ukraine in 2022.

If oil and gas prices continue to rise, “the response of firms and workers may be faster than last time,” ECB President Christine Lagarde said yesterday in the text of a speech at a conference in Frankfurt, Germany.

“We have a more recent memory of high inflation, which could affect how quickly costs are passed on and compensation is sought,” Lagarde said.

Even though the ECB brought the 2022 inflation spike under control with higher interest rates, “that experience has left a mark,” she said. “An entire generation has now lived through its first episode of high inflation — and it may not be as slow to react a second time.”

Inflation in the countries that use the euro currency peaked at 10.6% in October 2022 after the invasion led to the cutoff of most Russian natural gas supplies and sent oil prices temporarily higher.