The inflation rate in Europe jumped to an annualized 2.5% in March as energy prices spike due to the war in Iran.
Inflation is now well ahead of the European Central Bank’s 2% annualized target. However, inflation was slightly below the 2.6% consensus expectation of economists.
The March increase was largely due to a sharp rise in energy prices since the U.S. and Israel launched military strikes against Iran on Feb. 28.
The energy component of the inflation data index increased an annualized 4.9% in March, compared with a negative -3.1% reading in February.
European Central Bank President Christine Lagarde said last week that she was watching the inflation data closely and that the bank would respond with interest rate hikes if needed.
The central bank recently revised its growth and inflation forecasts and now expects economic growth of 0.9% in 2026, with inflation averaging 2.6% this year.
The inflation report is the latest evidence of a downturn for the European Union (EU), with economic sentiment, consumer confidence, and employment impacted by the Iran war.
Iran’s closure of the Strait of Hormuz, a vital maritime passage for a fifth of the world’s oil and gas exports, has caused global energy prices to surge in recent weeks.
Europe is vulnerable to energy price increases given its reliance on natural gas and crude oil imports.
The European Central Bank next decides on interest rates on April 30 of this year.
