Eurozone inflation surges in March, fuelled by sharp rise in oil prices

Eurozone inflation jumped to 2.5% in March (the biggest monthly increase since late 2022) from 1.9% previous month, slightly below 2.6% consensus, as surge in energy prices of nearly 5%, started to bite, although lower than expected core inflation, stripped for the most volatile food and energy components (fell to 2.3% from 2.4% in February), would partially offset central bank’s worries.

Sharp rise of oil prices in the escalating war in the Middle East prompts ECB policymakers to bring back potential rise of interest rates on agenda, to prevent stronger rise of inflation that may cause a domino-effect on the entire economy.

Economists see the latest rise of inflation as strong warning that the period of price stability and inflation holding around the central bank’s target, is likely over and policymakers should be ready to act timely, not to face the situation like it was in 2021/22, when inflation spiked to 10.5% and the central bank was chasing it by multiple and fast rate hikes.

The policymakers will continue to closely monitor the situation, particularly focusing on core inflation, which would be the main trigger for the action, as many observers see three interest-rate hikes from the ECB this year, with the first in either April or June, despite the board members are still divided over the time and pace of potential policy tightening.