**Inflationary Pressures Expected to Persist Despite US-Iran Agreement**
The recent agreement between the United States and Iran has been recognized as a significant development in the realm of energy markets and global trade. However, experts caution that inflationary pressures are likely to linger for an extended period. Marios Zachariades, an economics professor at the University of Cyprus, shared insights on the implications of this agreement in an interview with the Cyprus News Agency (CNA).
Zachariades noted that the agreement has already triggered a notable decline in international Brent crude oil prices. This decrease is expected to gradually translate into lower gasoline prices at petrol stations across Cyprus in the coming weeks. He stated, "There is already a huge drop in the international price of Brent oil, and this should be transmitted slowly to gas stations in the coming weeks."
Despite the anticipated reduction in fuel prices, Zachariades warned that the broader effects on food production, transportation costs, and overall consumer prices would take longer to manifest. He explained that the previous high energy prices had already been integrated into production and supply chains, meaning that the impact of the recent price drop would not be immediate across all sectors. "However, we will see a more immediate reduction in gasoline at gas stations in the coming weeks, logically based on what we see in international markets," he added.
The economic ramifications of the US-Iran agreement are significant, but Zachariades emphasized that it does not completely eliminate uncertainty. The agreement is essentially a temporary two-month ceasefire accompanied by ongoing negotiations, which means that market participants and policymakers will need to remain vigilant as developments unfold. "The important thing, however, is that the Straits of Hormuz are opening," he remarked, while also highlighting that the process of normalizing oil traffic will take time.
Brent crude oil prices, which had been elevated for an extended period, have recently fallen below $80 per barrel. This decline is expected to exert downward pressure on crude prices as oil traffic begins to normalize. However, Zachariades pointed out that the previous period of high oil prices has already influenced the costs of various products, including their production and transportation. "Because oil prices had remained high for a prolonged period, other products, their production, their transportation have already been affected," he said, indicating that inflationary trends will not dissipate immediately with the new agreement.
In the context of Cyprus, the situation is particularly pertinent, as the country continues to experience growth rates that exceed the eurozone average. However, inflation expectations among households and businesses remain elevated. Zachariades noted that these expectations could contribute to sustained price pressures in the near future. "A big problem in general in the global economy and in the European one is that inflationary expectations have already risen," he explained. "Cyprus is an example where households and businesses are indeed expecting higher inflation, an even higher price trend, and this in itself is going to push prices up in the coming period in Cyprus."
The professor elaborated that a variety of products have already seen price increases due to higher oil and raw material costs, which are now reflected in consumer and business expectations. Consequently, even if the situation surrounding the Strait of Hormuz improves in the coming months, the easing of inflationary pressure will take time.
Zachariades also commented on the European Central Bank's (ECB) recent decision to raise interest rates in an attempt to combat inflation. He suggested that another interest rate increase may be necessary in 2027, depending on how inflation expectations develop. He noted that the pressure on inflation may be less severe than it would have been had the Iranian situation remained unresolved. "There will not be a huge improvement in the next few months; perhaps towards the end of 2027, beginning of 2028, we will see a better horizon in terms of inflation, but not at this time," he stated.
In conclusion, Zachariades emphasized that global events often leave a lasting impact on economic conditions. Europe, in particular, continues to grapple with the dual challenges of persistent inflation and sluggish growth. As the situation evolves, stakeholders will need to navigate these complexities to foster economic stability.