Eurozone inflation picked up unexpectedly in February, and could accelerate further if the rise in energy prices that followed U.S. and Israeli attacks on Iran is sustained.
Consumer prices in the 21-member currency area were 1.9% higher than a year earlier compared with a 1.7% rise in January, the European Union’s statistics agency Eurostat said Tuesday. That was above a consensus of economists polled by The Wall Street Journal, which expected the inflation rate to remain unchanged on month.
The ECB targets an inflation rate of 2%, and forecasts price growth to average 1.9% in the first quarter.
The bank has said it expects consumer prices to average 1.9% this year, and to fall a little further in 2027, before rebounding to target in 2028. At its latest meeting in early February, the ECB voted to keep its key interest rate unchanged at 2%, reiterating that policy remains in a “good place.”
But higher energy prices following the attacks on Iran may push inflation even higher. The price of Brent crude oil, the international benchmark, topped $80 a barrel on Tuesday, and analysts have said prices could hit $100 if the conflict is prolonged. European natural-gas prices have risen more than 75% in the last two days. The price of oil and gas declined over 2025, but began picking up at the start of this year following multiple geopolitical shocks.
However, fresh geopolitical uncertainty could weaken confidence and damp growth, thereby cooling inflation. It could take time before policymakers can discern which of those effects are dominant, and respond.
“Should disruptions to oil markets or key transport routes materialize and become more permanent, this could increase costs and thereby influence inflation in Europe,” said Martin Kocher, head of Austria’s central bank, in an interview. “At the same time, heightened geopolitical tensions can weigh on investment and economic activity.”
While Europe isn’t highly reliant on energy resources from the Persian Gulf region, an increase in global prices for oil and natural gas would ultimately feed through to prices in Europe, regardless of limited physical imports.
Restrictions on gas imports are a particular concern for the bloc, as storage levels currently remain low. On Monday, a drone attack on QatarEnergy’s Ras Laffan gas complex caused European prices to soar.
The European Central Bank has previously said a 14% increase in oil prices could drive an increase in the inflation rate of half of a percentage point. Commerzbank estimates that a prolonged war in the Middle East could raise eurozone price growth by a full percentage point.
Eurozone energy prices, which are heavily influenced by international markets, slipped 3.2% in February compared with a 4% fall in January. Services inflation edged up to 3.4%.
Higher energy prices could prompt the ECB to consider raising interest rates, Point72 economist Soeren Radde said in a note. “In practice, the ECB will be wary of mistaking a very persistent energy price shock for a transient shock.”
But the ECB shouldn’t rush to draw comparisons with a spike in energy prices in 2022, said Guntram Wolff, professor of economics at the Universite Libre de Bruxelles. Russia’s war on Ukraine hit Europe particularly hard due to reduced supplies of natural gas and prolonged uncertainty over sanctions, which don’t apply in the case of Iran, he said.
“For now it’s a temporary shock, and as a central bank you want to look through this. Even if it’s a permanent shock, in the long term it will shuffle consumption away from other areas of demand towards energy use, offering some counterbalancing effect,” Wolff said.
In response to the 2022 spike in energy prices, the ECB raised its key interest rate by four-and-a-half percentage points between July 2022 and September of the following year. Inflation peaked in late 2022, and spent much of last year hovering around the 2% target.
A stronger euro, weak consumer demand and an influx of cheap goods from China have all put downward pressure on prices. https://www.wsj.com/economy/global/eurozone-inflation-remains-below-target-but-risks-loom-3e6bc673?mod=global_more_article_pos1
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