How the ‘double scar' of past inflation woes and geopolitical shocks amid the Iran war is hitting consumers

• March 2026 data showed consumers revised inflation expectations upward by 2.5 percentage points while cutting growth expectations by 1.2 percentage points, one month after the Iran conflict began in late February
• Oil prices have fallen 20% in May but remain roughly 30% above pre-Iran war levels, with the ECB expected to cut rates by a quarter-point in June to manage economic impacts
• Consumers are becoming 'hyper-aware' of mounting costs and significantly more conservative with spending, particularly feeling the impact of rising grocery and fuel prices that increase delivery fees

Summary

Key Findings

European Central Bank research reveals a "double scar" effect on consumer behavior, combining lingering trauma from post-pandemic inflation and the 2022 Ukraine invasion with new anxieties from the Iran war that began in late February 2026.

Main Data Points

• Inflation expectations: Consumers revised projections upward by 2.5 percentage points in March 2026, one month after the Iran conflict started
• Growth expectations: Economic growth projections fell by approximately 1.2 percentage points
• Oil prices: Despite declining 20% in May, prices remain roughly 30% above pre-war levels
• Monetary policy: ECB widely expected to cut rates by 0.25 percentage points in June

Market Implications

The compound psychological scarring is creating heightened sensitivity to economic shocks and raising stagflation fears—where rising prices coincide with declining growth. While current conditions are less severe than the 2022 Ukraine crisis, ECB researchers warn of potential consumer overreaction as short-term anxieties translate into medium-term behavioral changes.

Retail Sector Impact

Consumer anxiety is driving more conservative spending patterns. Shoppers are "hyper-aware" of costs, particularly grocery and fuel prices, which directly affect delivery fees. According to Melissa Minkow of CI&T, consumers have become extremely cautious with spending decisions.

Retailers face pressure to quickly adapt to cost-conscious behavior and invest in technology, as the boundary between geopolitical events and retail dynamics becomes increasingly blurred. The research suggests these combined economic wounds will continue shaping consumer expectations and behavior in coming months amid persistent conflicts and macroeconomic uncertainty.