Fears that the Iran war could trigger another wave of runaway inflation across Europe are, at least for now, proving unfounded. A Reuters analysis of corporate earnings calls from some of the euro zone’s largest companies suggests that businesses are finding it far more difficult to raise prices than they did following Russia’s invasion of Ukraine in 2022.
Only about one third of surveyed companies reported raising or planning to raise prices in response to higher energy and input costs linked to the conflict. The findings indicate that weak economic growth, cautious consumers, and the absence of large government stimulus programs are limiting companies’ ability to pass costs on to customers.
The contrast with 2022 is striking and provides important clues about the future direction of inflation, interest rates, and economic growth across Europe.
The euro zone experienced one of its most severe inflationary episodes after Russia invaded Ukraine in February 2022. Energy prices surged, supply chains were disrupted, and governments responded with large fiscal support packages designed to shield households and businesses from rising costs.
As a result, inflation soared into double digits in several European countries, forcing the European Central Bank to embark on an aggressive interest rate tightening cycle.
When conflict erupted between Iran and its adversaries in 2026, policymakers feared a repeat scenario. Energy markets reacted immediately, oil prices jumped, and concerns emerged that higher transportation and production costs would spread through the broader economy.
However, the economic environment in 2026 looks fundamentally different from that of 2022.
Inflation was already elevated before the Ukraine war began, while current inflation remains comparatively moderate. Economic growth is weaker, consumer confidence is fragile, and governments are not providing the same level of fiscal support that previously boosted demand.
These differences are proving crucial in shaping how businesses respond to rising costs.
What Reuters’ Corporate Analysis Reveals
Reuters examined 175 earnings calls from major euro zone listed companies between April and May using artificial intelligence assisted analysis.
Among the companies reviewed:
- 105 discussed energy costs.
- 91 explicitly linked rising costs to the Iran war.
- Only 55 non financial companies reported raising prices or planning increases.
The findings suggest that while companies acknowledge rising costs, many remain reluctant to pass them on because customers are unwilling or unable to absorb additional price increases.
This marks a dramatic shift from 2022, when nearly two thirds of surveyed companies successfully transferred higher costs to consumers and business clients.
Why Companies Are Struggling to Raise Prices
Weak Consumer Demand
The most important factor is weak consumer spending.
European households have spent years dealing with inflation, high borrowing costs, and slowing wage growth. As a result, consumers are more price sensitive than they were immediately after the pandemic.
Retailers and consumer focused companies fear that significant price increases could lead customers to cut spending altogether.
This explains why many consumer businesses are prioritizing market share and sales volumes over profit margins.
Slower Economic Growth
The euro zone economy is growing far more slowly than it was in the immediate post pandemic period.
In 2022, pent up demand and government support programs created strong economic momentum. Businesses had confidence that customers would continue spending despite rising prices.
Today, that cushion has largely disappeared.
A sluggish economy reduces pricing power because companies face greater competitive pressure and weaker demand conditions.
Less Government Support
Another key difference is the absence of massive fiscal intervention.
During the Ukraine related energy crisis, governments across Europe spent hundreds of billions of euros supporting households and businesses.
Those measures effectively protected purchasing power and allowed companies to increase prices without causing a severe collapse in demand.
Current governments are far more fiscally constrained, limiting their ability to repeat similar support programs.
Industrial Companies Are Passing Costs On More Easily
Business Customers Remain More Flexible
The analysis reveals a significant divide between industrial firms and consumer facing businesses.
Companies selling products and services to other businesses have generally found it easier to pass through higher costs.
Industrial customers often view energy costs as part of normal operating expenses and may have fewer alternatives when critical inputs become more expensive.
German chemical giant BASF and French cable manufacturer Nexans were among companies implementing or considering price increases.
Consumer Businesses Face Resistance
The picture is very different for companies selling directly to households.
Retailers, food producers, and consumer goods companies face customers who remain highly sensitive to price increases after years of inflation.
Among consumer goods companies examined in the study, only Italian tyre manufacturer Pirelli confirmed significant cost pass through measures.
This suggests that consumers remain the weakest link in Europe’s economic recovery.
Lessons Learned From the Ukraine Inflation Shock
More Hedging Strategies
One of the most important developments since 2022 is that companies appear better prepared for energy market volatility.
A growing number of firms have adopted hedging strategies that lock in prices through long term contracts or financial instruments.
By securing future energy costs in advance, companies reduce their immediate exposure to sudden price spikes.
This gives management greater flexibility and reduces the need for rapid price increases.
Increased Use of Indexation Clauses
Many businesses have also expanded the use of automatic price adjustment mechanisms.
These clauses allow companies to adjust prices when fuel, energy, or raw material costs rise beyond predetermined thresholds.
Such mechanisms provide a more predictable way of managing inflationary pressures without resorting to abrupt price hikes.
What This Means for the European Central Bank
Perhaps the most important implication concerns monetary policy.
The European Central Bank has been carefully assessing whether energy driven inflation could once again spread throughout the wider economy.
So far, evidence suggests that broad based inflationary pressures remain contained.
If companies cannot easily raise prices, energy shocks are less likely to trigger the kind of inflation spiral seen after 2022.
This may allow the ECB to proceed more cautiously with future interest rate decisions rather than launching another aggressive tightening cycle.
However, policymakers are unlikely to declare victory too soon.
Transport companies such as Lufthansa and Deutsche Post have already introduced fuel related surcharges, and economists warn that inflation can take months to spread through supply chains.
Analysis: Why This Is a Crucial Test for Europe’s Economy
The Reuters findings reveal something deeper than simply a slowdown in inflation.
They highlight the changing balance of power between businesses and consumers in Europe’s post pandemic economy.
In 2022, companies operated in an environment where demand was strong enough to absorb higher prices. Businesses effectively possessed significant pricing power, enabling them to protect profit margins while passing rising costs to customers.
Today, the opposite appears true.
Consumers have become more cautious, economic growth has weakened, and companies are increasingly forced to absorb part of the cost burden themselves.
This shift may be positive for inflation control, but it also signals underlying economic weakness.
An economy where businesses cannot raise prices often reflects fragile demand rather than healthy stability.
For policymakers, this creates a difficult balancing act. The ECB may welcome slower inflation, but it must also consider whether weak pricing power points to a broader growth problem that could hinder Europe’s economic recovery.
In many ways, the current situation demonstrates that Europe has learned lessons from the Ukraine energy crisis. Businesses are better prepared, governments are more cautious, and markets are less prone to panic.
Yet the data also suggests that Europe’s economy remains vulnerable. The absence of strong inflation may not necessarily reflect resilience alone. It may also reflect a lack of economic momentum.
Future Scenarios
Scenario One: Inflation Remains Contained
Energy prices stabilize, companies absorb most additional costs, and inflation remains manageable.
This would allow the ECB to maintain a gradual policy approach while supporting economic growth.
Scenario Two: Delayed Inflation Emerges
Energy and transport costs gradually filter through supply chains over several months.
Inflation rises moderately, forcing the ECB to adopt a more cautious stance on interest rates.
Scenario Three: A Broader Middle East Escalation
If the Iran conflict expands and severely disrupts global energy supplies, Europe could face a much larger energy shock.
In that case, inflation pressures could accelerate rapidly, potentially recreating some elements of the 2022 crisis.
What’s Next?
Investors and policymakers will closely monitor inflation data, corporate earnings, energy markets, and consumer spending trends over the coming months.
Particular attention will focus on whether transport surcharges, industrial price increases, and higher fuel costs begin spreading more broadly through the economy.
The ECB’s upcoming policy decisions will also provide important signals regarding how central bankers interpret current inflation risks.
For now, the evidence suggests that Europe is avoiding a repeat of the Ukraine era inflation surge. However, with the Iran conflict still evolving and energy markets remaining volatile, the final economic impact remains far from certain.
Conclusion
The euro zone’s response to the Iran war highlights how dramatically Europe’s economic landscape has changed since 2022. Companies are raising prices far less aggressively, consumers are more cautious, and inflationary pressures appear more contained.
While this reduces the risk of another inflation crisis, it also underscores a more uncomfortable reality: Europe’s economy remains too weak to easily absorb new shocks. The coming months will reveal whether this restraint reflects resilience and adaptation or deeper structural fragility within the region’s economic recovery.
With information from Reuters.
