ESRI: Oil Prices to Remain High Until 2027, Inflation Forecast Revised to 3.7%

The Economic and Social Research Institute (ESRI) forecasts oil prices will remain significantly above pre-war levels in Iran through 2026 and 2027, even if the current ceasefire holds. This sustained high price environment is expected to further impact inflation.

In its Quarterly Economic Commentary, the ESRI revised its annual inflation forecast to 3.7% for the remainder of the year and 3.1% for 2027. The institute noted that while price increases have been concentrated on energy, second-hand effects, such as rising food prices, are anticipated throughout the year. The government is expected to decide next week on extending its fuel support package, which expires on July 31.

Research professor Alan Barrett stated that the forecasted inflation will disproportionately affect those on fixed incomes, including social welfare and minimum wage recipients, whose rates were set in October’s Budget for 2026 based on lower inflation forecasts. He also highlighted concerns about potential vulnerabilities in public finances, despite strong headline figures, suggesting that readily available revenues might lead to suboptimal policy, citing the fuel package as an example of untargeted measures. Barrett emphasized the importance of upcoming public sector pay talks being based on a clear understanding of these vulnerabilities.