Inflationary pressures to linger despite US-Iran agreement

The US-Iran agreement has triggered a sharp drop in international Brent crude prices, which University of Cyprus economics professor Marios Zachariades expects to gradually reduce gasoline costs at Cypriot petrol stations within weeks. Brent oil prices have fallen below $80 per barrel, easing pressure on crude markets as oil traffic through the Strait of Hormuz begins to normalize. Zachariades noted, however, that the agreement amounts to a temporary two-month ceasefire, leaving uncertainty over long-term stability. Inflationary pressures from prolonged high oil prices have already seeped into production and supply chains, affecting food and transport costs. While gasoline prices may decline soon, broader inflation trends—fueled by elevated expectations among households and businesses—will take longer to ease. Cyprus, with stronger growth than the eurozone average, faces heightened inflation risks, as consumer and business expectations of rising prices continue to drive up costs. The European Central Bank’s recent interest rate hikes aim to curb inflation, but Zachariades suggested another increase in 2027 may be necessary, depending on inflation trajectory. He stressed that even if the Strait of Hormuz stabilizes, normalization of inflationary trends will require time, as supply chain disruptions and cost increases persist globally. The agreement’s immediate impact is limited to oil markets, with the Strait of Hormuz’s full reopening requiring weeks to clear lingering obstacles like underwater mines. Zachariades warned that while oil prices may stabilize, the broader economic ripple effects—including higher production and transport costs—will linger, keeping inflation under pressure in Cyprus and beyond.