Euro zone inflation smashes through ECB target to 2.5% in March as energy costs soar

Inflation in the euro zone jumped to 2.5% in March, according to the latest preliminary figures from Eurostat on Tuesday.

Euro zone inflation was up from 1.9% in February and jumped well ahead of the European Central Bank’s 2% target.

The increase largely reflects a sharp jump in energy prices since the U.S. and Israel launched their military operation against Iran at the end of February. Economists polled by Reuters had expected a reading of 2.6%.

Eurostat said the energy component of the inflation data was expected to have risen to 4.9% in March, compared with -3.1% in February. Inflation was also driven by services (3.2%, compared with 3.4% in February), and food, alcohol & tobacco (2.4%, compared with 2.5% last month).

ECB President Christine Lagarde said last week that the central bank was watching regional data closely and would respond with interest rate hikes if necessary, even if a surge in inflation proved to be short-lived.

The central bank has already revised its growth and inflation forecasts for the medium-term and now expects economic growth of 0.9% in 2026, with headline inflation averaging 2.6% for the year.

The inflation print is the latest evidence of a looming downturn for the euro zone, with economic sentiment, consumer confidence, employment expectations and private sector output growth all hit by the outbreak of the Iran war — a conflict Europe sees as a U.S.-led war of choice, rather than necessity.

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