Euro Area Inflation Expected to Surge to 2.5 Percent in March

(MENAFN) Euro area inflation is forecast to jump sharply to 2.5 percent in March, up from 1.9 percent in February, driven overwhelmingly by a dramatic reversal in energy prices, according to a flash estimate released by Eurostat on Tuesday.

Energy costs led the surge, soaring to 4.9 percent after registering -3.1 percent the previous month — a swing of more than eight percentage points that single-handedly accounts for the bulk of the inflationary uptick. Other categories offered a partial counterweight: services inflation eased slightly to 3.2 percent from 3.4 percent, while prices for food, alcohol and tobacco edged down to 2.4 percent from 2.5 percent. Non-energy industrial goods rose by 0.5 percent, compared with 0.7 percent in the previous month.

Stripping out the most volatile components, core inflation — excluding energy, food, alcohol and tobacco — dipped to 2.3 percent in March from 2.4 percent in February, signaling that underlying price pressures remain relatively contained for now.

Across the bloc's largest economies, inflation is expected to reach 2.8 percent in Germany, 1.9 percent in France, 1.5 percent in Italy and 3.3 percent in Spain.

The European Central Bank (ECB) has already flagged the deteriorating outlook, warning that the conflict raging in the Middle East is reshaping its projections in troubling ways.

"The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth," the European Central Bank (ECB) said earlier.

The ECB said its latest projections showed higher inflation expectations and weaker economic growth, particularly for 2026, reflecting the global impact of the war on commodity markets, real incomes, and confidence.

Under current projections, euro area inflation is expected to average 2.6 percent in 2026, while economic growth this year is penciled in at a modest 0.9 percent — a figure analysts warn could deteriorate further if hostilities persist.

ING Chief Economist Bert Colijn cautioned that the Middle East situation dominates the inflation outlook, posing upside risks not only to energy prices but also to food and goods prices due to fertiliser shortages and supply chain disruptions.

He added that the longer the disruption lasts, the greater the likelihood of broader increases in both headline and core inflation, with the ECB focusing on keeping inflation expectations anchored around 2 percent.

The inflationary pressure stems directly from the conflict that erupted on Feb. 28, when the United States and Israel launched coordinated large-scale military operations against Iran — prompting Tehran to retaliate with strikes on Israeli targets and US military bases across the region.

Now entering its fifth consecutive week with no resolution in sight, the conflict has sent energy markets into turmoil, threatening to entrench elevated prices across the broader European economy.

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