Energy price surge drives eurozone inflation to 2.5 per cent

The conflict in the Middle East is already having a noticeable impact on the eurozone economy, with inflation accelerating to 2.5 per cent in March.

The main driver has been a sharp rise in energy prices, which increased by 6.8 per cent month on month.

Although energy accounts for a relatively small share of the consumer basket, its effect on inflation expectations is significant. This is feeding through into a deterioration in consumer sentiment, as households begin to anticipate weaker economic prospects and a decline in their own financial situation.

According to Richard Kubas, an analyst at the Institute of Financial Policy at the finance ministry, the impact varies across countries, with Slovakia among the least affected, as its energy prices are more closely tied to long-term contracts.

Nevertheless, the OECD has downgraded its eurozone growth forecast to 0.8 per cent while raising its inflation estimate.

The fertiliser market remains a further risk. The closure of the Strait of Hormuz has disrupted a significant share of global supply, pushing prices higher and raising the prospect of more expensive food, adding further pressure on inflation.

(tasr, pir)