The European Central Bank’s latest survey of corporate expectations shows firms across the Eurozone are revising their cost and inflation forecasts upward, pointing directly at geopolitical strains from the US-Iran conflict as the primary driver. The quarterly poll, which captures the views of business leaders, signals that the ripple effects of the Middle East tensions are starting to show up in price-setting behavior across the currency bloc.
What the survey found
The survey, conducted in the first quarter of 2025, asked firms about their expectations for costs and selling prices over the next 12 months. Respondents reported a marked increase in both measures compared with the previous quarter. The ECB did not release exact figures, but the trend was consistent across sectors and countries. Manufacturers, energy-intensive industries, and logistics firms were the most affected, citing higher input costs tied to disrupted supply routes and rising energy prices.
The shift in expectations is notable because it comes after months of easing inflation in the Eurozone. The survey suggests that the US-Iran conflict is now injecting fresh uncertainty into the outlook, with firms bracing for higher costs that they plan to pass on to customers.
Why firms are worried
Geopolitical tensions have escalated since early 2025, with US military strikes on Iranian targets and Tehran’s retaliatory moves in the Strait of Hormuz. That’s driven up global oil prices and raised the cost of shipping goods through the Persian Gulf. Eurozone firms, particularly those reliant on energy imports and intermediate goods, are feeling the squeeze.
“The survey captures the mood in the boardroom,” said an ECB official in a statement accompanying the release. “Firms are telling us they expect higher costs, and they’re adjusting their pricing strategies accordingly.” The official’s comment is the only direct quote available from the central bank. The rest of the survey’s implications must be drawn from the data itself.
The survey adds a new layer of complexity for ECB policymakers as they weigh their next moves on interest rates. Inflation in the Eurozone had been drifting toward the central bank’s 2% target, but the new data suggests that target could prove harder to hit from the upside. A sustained rise in cost expectations could force the ECB to keep rates higher for longer or even consider another hike — something few analysts expected just a few months ago.
At the same time, the Eurozone economy is barely growing. Higher borrowing costs risk choking off the fragile recovery. The ECB now has to balance the inflation risk from the US-Iran conflict against the risk of tipping the economy into recession. The survey doesn’t prescribe a policy path; it simply adds pressure.
Central bank officials are likely to scrutinize upcoming inflation prints and wage data before their next rate decision. The survey serves as an early warning that the geopolitical shock is translating into real pricing decisions on the ground.
