Eurozone inflation edges up to 1.9 percent as Iran conflict fuels energy shock

Tuesday 03 - 11:10

By: Dakir Madiha

Eurozone inflation edges up to 1.9 percent as Iran conflict fuels energy shock

Eurozone inflation picked up in February as the war involving Iran, the United States and Israel sent energy markets into turmoil and revived concerns about new price pressures in Europe. A flash estimate from Eurostat showed consumer prices in the 21-country currency bloc rising 1.9 percent year on year, up from 1.7 percent in January and slightly above economists’ expectations for an unchanged reading. The increase keeps inflation just below the European Central Bank’s 2 percent target but marks the first acceleration in headline price growth in several months.

Underlying price pressures also strengthened. Core inflation, which excludes volatile food and energy, climbed to 2.4 percent from 2.2 percent in January, while services inflation rose to 3.4 percent from 3.2 percent. Prices for food, alcohol and tobacco were broadly stable at about 2.6 percent, and energy costs remained lower than a year earlier, though the annual decline in energy prices narrowed to around 3.2 percent from 4 percent the previous month.

The inflation figures arrived as Europe grappled with a sharp escalation in the Iran conflict and mounting disruption to global energy supplies. The expanded U.S.-Israeli military campaign has effectively choked off tanker traffic through the Strait of Hormuz, a strategic waterway that normally carries about a fifth of the world’s oil shipments. Benchmark Brent crude jumped more than 7 percent on Monday, briefly moving above 80 dollars a barrel, and extended its gains into a third straight session on Tuesday.

European gas prices have surged even more dramatically. Dutch TTF benchmark futures spiked as much as 45 percent after QatarEnergy halted liquefied natural gas output at its North Field facility following an attack, in what Bloomberg described as the steepest one day increase since August 2023. Iran has warned commercial vessels against sailing through the strait, and satellite tracking has shown tanker flows through the corridor dropping to a near standstill over the weekend.

Officials at the European Central Bank moved quickly to frame the risks for inflation and growth. Chief Economist Philip Lane told the Financial Times that a prolonged conflict could trigger a substantial spike in energy driven inflation and a sharp fall in output if supply from the region remains constrained. Previous ECB sensitivity analysis suggests that a lasting oil price shock of this magnitude could add about 0.5 percentage point to inflation while shaving roughly 0.1 percentage point from eurozone growth.

Yannis Stournaras, a member of the ECB’s Governing Council, urged policymakers to stay flexible and avoid rushing into decisions while the scale and duration of the conflict remain unclear. He said inflation would face renewed upward pressure if hostilities continue but that a rapid start to negotiations could ease tensions and limit the economic fallout. For now, financial markets still expect the ECB’s 2 percent deposit rate to remain unchanged for the rest of 2026, reflecting the view that the central bank will look through short lived energy volatility unless it spills over into broader price setting.