Inflation in the eurozone accelerated to 2.5% in March—the surge in energy prices triggered by the war with Iran pushed the rate to its highest level in nearly two years.
The preliminary estimate came in slightly below the forecast of economists surveyed by Reuters, but compared with February’s 1.9%, the increase was sharp.
For the first time since early 2025, inflation rose clearly above the European Central Bank’s medium-term target of 2%.
The 0.6 percentage-point monthly increase was the steepest since late 2022, when energy prices jumped after Russia’s full-scale invasion of Ukraine.
Markets are pricing in two or three 0.25 percentage-point increases in the ECB’s benchmark rate by the end of 2026—the cycle could begin as early as April. Investors expect the regulator to try to prevent higher energy prices from feeding through into wages and other categories.
Since the war began in late February, the price of Brent crude has risen by more than 50%—to above $110 a barrel.
ECB President Christine Lagarde said at a conference in Frankfurt last week that the regulator would act only if inflation moved away from target “substantially and persistently,” but added that even a temporary overshoot could lead to higher rates if it proved large enough.
In a note to clients ahead of the data release, Nomura economist Andrzej Szczepaniak wrote that “the ECB is not thinking about March inflation, but about the war,” adding that the figures themselves were “unlikely to have a meaningful effect on the near-term path of the regulator’s policy.”
The euro was little changed after the data release, holding at $1.146. The ECB’s next rate decision is due on April 30.