I wish I could wrap up this series on Iran and our wallets soon. But reality is stubborn: the longer the conflict drags on, the deeper the economic consequences could be. For the moment, there's some respite. The price of fuel has fallen by nearly 20 cents per liter after the VAT reduction (after reaching €2). A great move by the government.
However, the outlook remains uncertain. Energy costs remain high: gas and electricity are experiencing double-digit increases in many European markets. Spain has a slight advantage thanks to the boost from renewables—already nearly 50% of electricity generation comes from wind and solar sources—but it's not immune. Germany, more dependent on gas, could see electricity prices rise three or four times higher. When energy costs go up, everything goes up. Producing, transporting, or providing services is more expensive, which is passed on to the final prices.
Travel will also be more expensive. Aviation fuel has risen by more than 30% in just a few months, and routes to Asia have become more complicated due to diversions and restrictions, with longer flights and more expensive tickets.
Credit will also be tight. With inflation still above 3%, central banks will maintain high interest rates. This makes personal loans and all financing more expensive.
The underlying risk is entering a scenario of stagflation: high inflation combined with stagnant economic growth. This is a particularly complex cocktail to manage and, historically, has often been the prelude to a global recession. The only way to avoid this is for the conflict to end as soon as possible and for energy prices to start falling. However, you will see that when oil starts to fall, fuel prices won't follow as quickly. Unfortunately, we still have weeks to wait.
