By Ed Frankl


Inflation in the eurozone was a bit higher in March than previously thought, as the energy shock from the Iran war proved more pronounced than expected.

Consumer prices were up 2.6% on year last month, the highest level since July 2024 and up from 1.9% in February. It was also an upward revision from the provisional estimate of 2.5% published on March 31.

Energy inflation for March was revised up to 5.1% from the 4.9% previously reported. In February, energy was 3.1% cheaper than a year prior. Meanwhile, core inflation, which strips out more volatile energy and food costs, was unchanged from the flash reading at 2.3%.

The second estimate of inflation takes a more comprehensive overview of the data, including a higher coverage of subsectors used to calculate the overall figure.

"Inflation is headed for 3%, and it will stay close to this level for a while," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said in a note to clients.

While the impact of the closure of the Strait of Hormuz on inflation is already evident, much about future effects will depend on the duration and extent of the war. While central banks sometimes see pronounced increases in energy costs as temporary, they can grow more concerned if price pressures spread to more persistent forms of second-round inflation via, for instance,spiraling wage costs.

"A significant inflation shock is still on the way, even if we assume relatively modest second-round effects in food and core inflation," Vistesen said.

European Central Bank President Christine Lagarde said this week that the impact of the war was landing between the bank's baseline and adverse scenarios, the latter of which predicts a sharper rise in inflation and slower economic growth.

"We have to be completely agile and ready to move in the direction that is required," she said on the sidelines of an International Monetary Fund meeting in Washington, D.C.

The bank, which said in March that it expected inflation to average 2.6% this year, next meets on April 30. Investors have ramped up bets on interest-rate rises since the first strikes on Iran in late February. They have priced in at least two quarter-point hikes this year, according to LSEG data.

The IMF on Tuesday downgraded its forecast for eurozone growth this year to 1.1% from the 1.3% growth it forecast in January.


Write to Ed Frankl at edward.frankl@wsj.com


(END) Dow Jones Newswires

04-16-26 0620ET