Key Takeaways
- Eurozone inflation increased to 2.5% year over year in March, according to Eurostat estimates, below the consensus forecast of 2.7%.
- Core inflation stood at 2.3% year over year, slightly down from February’s 2.4% and in line with the consensus forecast.
- Potential shocks to oil supply remain crucial indicators of future inflation trends.
Consumer prices in the eurozone increased by 2.5% year over year in March, according to Eurostat’s flash estimate. This compares with February’s reading of 1.9% as the impact of the Iran war drove energy prices higher. The reading was slightly below consensus estimates but well above the European Central Bank’s medium-term inflation target of 2%.
This has prompted a sharp shift in expectations for the ECB in recent weeks: Futures markets now price in two to three 0.25 percentage point rate hikes in 2026, with a first move as early as June increasingly likely.
Core inflation, which excludes volatile components such as energy and food, came in at 2.3% in March, down from February’s figure of 2.4% and in line with expectations. This suggests that the increase in inflation is largely the result of higher oil prices, says Michael Field, Morningstar’s chief European markets strategist.
“In particular, prices for diesel and petrol rose in most countries, in some cases by double-digit percentages,” says Ulrike Kastens, senior economist at DWS. “Other categories of goods, by contrast, had a dampening effect on the inflation rate.”
According to Eurostat’s estimates, energy is expected to have risen by 4.9% in March, compared with a decline of 3.1% in February and services by 3.2%, down from February’s 3.4%. Food, alcohol, and tobacco prices rose by 2.4%, slightly down from 2.5% in February, and nonenergy industrial goods prices rose by 0.5%, down from 0.7% in February.
The impact of the destruction of energy infrastructure in the Middle East will be felt on global energy markets for months and years to come, economists say. According to Reuters, Iranian attacks have knocked out around 17% of Qatar’s liquefied natural gas export capacity. Qatar is one of Europe’s key suppliers.
Brent crude is up by about 47% since early March, and West Texas Intermediate is up around 54%.
What Is the Inflation Outlook for 2026?
Possible shocks to oil supply and geopolitical risks remain crucial variables for future inflation trends.
“Even if a way will be found to end direct hostilities relatively soon, the unintended consequences of the Iran conflict will be felt much longer than the few weeks initially announced,” says Alain Bokobza, head of global asset allocation at Société Générale.
“Until decisive military intervention or diplomacy succeeds in changing the situation, the Strait of Hormuz will remain closed for most vessels. Retaliatory attacks on neighboring Gulf states have seriously damaged LNG production capacity for many months to come,” he adds.
“Inflation expectations have surged, triggering a simultaneous selloff in both equities and bonds alongside a hawkish turn at central banks around the globe.”
The ECB raised its inflation outlook on March 19 and now expects inflation to average 2.6% in 2026, up from 1.9% in December. The outlook for 2027 was raised to 2.0% from 1.8%.
“Some countries have already introduced fiscal measures to reduce energy prices,” says DWS’s Kastens. In Spain and Italy, diesel and petrol prices have already fallen, which should help to ease inflation in April. Natural gas prices, on the other hand, are responding with a delay, as households in most countries have long-term contracts, she says.
Meanwhile, the start of the holiday season is expected to push up prices for airline tickets and package holidays in the eurozone, and companies could push through price rises more quickly in the face of rising costs.
“The longer the war in the Middle East lasts and the Strait of Hormuz remains effectively closed, the greater the risk of second-round effects,” Kastens says.
A Mixed Inflation Picture Across the Eurozone
Inflation varied widely across the bloc, with annual rates ranging from 1.5% in Italy and Cyprus to 4.7% in Croatia.
German inflation jumped to 2.8% from 2.0% in February. France’s annual inflation came in at 1.9% from 1.1% in February, and Spain at 3.3% from 2.5%.
