Euro zone inflation jumped to 2.5 per cent in March as soaring energy prices triggered by the Iran war pushed price growth to the highest level in more than a year.
The preliminary estimate for March was slightly lower than economists’ forecast in a Reuters poll but was a sharp increase from 1.9 per cent in February, taking the annual inflation rate to the highest level since January 2025.
It is also the first time since early 2025 that the inflation rate has risen markedly above the European Central Bank’s (ECB) medium-term target of 2 per cent.
The overshoot was driven by a 4.9 per cent year-on-year increase in energy prices.
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Core inflation, which excludes volatile energy and food prices, came down by 0.1 percentage points to 2.3 per cent. The closely watched services inflation figure, which has been persistently above 2 per cent, fell to 3.2 per cent from 3.4 per cent.
Diego Iscaro, an economist at S&P Global Market Intelligence, said it was “likely just a question of time” until core inflation started rising again as high energy prices would “feed into other areas such as food and goods prices”.
[ Inflation spikes just as prices were coming down on many consumer goodsOpens in new window ]
Traders are pricing two or three quarter-point increases in the ECB’s benchmark interest rate by the end of 2026 in a series of moves that could start as early as April.
Investors expect that policymakers will try to prevent a spillover of higher energy prices into wages and other prices.
Brent crude prices have surged by more than 50 per cent since the start of the war in late February to above $110 (€95.95) a barrel.
ECB president Christine Lagarde told a conference in Frankfurt last week that the central bank would only need to act if inflation was to deviate “significantly and persistently” from target but she added that even a temporary overshoot might lead to rate rises if it was big.
Commerzbank economists said the smaller than expected increase in inflation was in line with the ECB’s “mildest” crisis scenario” that envisages only a temporary and limited overshoot.
“This argues against the ECB raising its key interest rates multiple times, as the market expects,” they wrote in a note to clients.
The euro was little changed immediately after the data at $1.146. The ECB will next set interest rates on April 30th. – Copyright The Financial Times Limited 2026
