FRANKFURT : The inflation rate across the 21-nation eurozone rose to 2.5 percent in March, up from 1.9 percent in February, according to data released by Eurostat, the European Union’s statistics agency. While the figure came slightly below market expectations of 2.6 percent, it still surpassed the European Central Bank’s (ECB) target of 2 percent.
The increase has largely been attributed to a surge in energy prices, which rose by 4.9 percent during the month. Oil prices, in particular, have nearly doubled amid the ongoing conflict involving Iran, significantly impacting the region’s overall price levels.
Despite the rise in headline inflation, core inflation, which excludes volatile components such as food and energy, eased slightly to 2.3 percent from 2.4 percent.
Economic theory typically advises central banks to look past temporary price shocks caused by supply disruptions. However, the current surge in energy costs has raised concerns about broader inflationary effects. Analysts warn that if businesses begin passing on higher costs to consumers, or if workers demand wage increases to offset rising living expenses, inflation could become more entrenched.
In response, financial markets are increasingly pricing in three interest rate hikes by the ECB this year, with the first expected as early as April or June. The central bank is set to review its policy stance at its upcoming meeting on April 30, where further clarity on its response to rising inflation is anticipated.
Eurozone inflation accelerated to 2.5% in March from 1.9% in February, driven mainly by a 4.9% jump in energy costs as oil prices nearly doubled amid conflict involving Iran. Though slightly below forecasts, inflation remains above the ECB’s 2% target, prompting markets to price in up to three interest rate hikes this year, with the first expected by mid-2024.