Banco de Portugal warns Middle East war could lift inflation to 3.8% and trims deficit forecast

Portugal’s central bank said the ongoing war in the Middle East will continue to pressure prices, potentially raising inflation to 3.8% even if a cease‑fire is reached. Governor Álvaro Santos Pereira emphasized that the conflict’s impact on global commodity markets could keep consumer‑price growth elevated.

In a separate update, the bank revised its public‑finances outlook, cutting the projected 2026 budget deficit for this year from 0.4% of GDP to 0.2%. It still expects the deficit to increase to about 0.5% in the following two years, citing higher net public spending and a projected decline in fiscal revenue relative to GDP.