economy
How the ‘double scar’ of past inflation woes and geopolitical shocks amid the Iran war is hitting consumers
Mental "scars" reinforce fears of stagflation, when rising prices coincide with declining growth, research finds.
TL;DR
- Euro area households show increased sensitivity to economic consequences due to cumulative wounds from post-pandemic inflation and the 2022 invasion of Ukraine.
- Consumer expectations are shaped by memories of recent adverse events, reinforcing fears of stagflation.
- Data shows consumers sharply revised inflation expectations upwards and economic growth expectations downwards following the Iran war.
- While less severe than the shock from the Russia-Ukraine invasion, a risk of overreaction exists as consumers extrapolate short-term fears.
- Macroeconomic anxiety is translating into more conservative retail spending, with consumers being hyper-aware of mounting costs.
- Retailers need to adapt to cost-conscious shoppers and a blurring line between politics and retail.