Inflation hits 3% in Europe as Iran war spreads oil price shock
FRANKFURT, Germany (AP) — Soaring oil prices from the Iran war pushed inflation higher in Europe in April, as growth continued to underperform in a worrying combination both for consumers and policymakers at the European Central Bank.
Annual inflation in the eurozone — the 21 countries that use the shared euro currency — rose to 3% from 2.6% in March, fueled by a 10.9% increase in energy prices, the European Union statistical agency Eurostat reported Thursday. Crude oil is trading above $120 per barrel, up from around $73 before the outbreak of the war on Feb. 28.
Meanwhile, eurozone growth for the first three months of the year disappointed with a marginal increase in economic output of 0.1% over the quarter before.
The war is dealing a huge shock to the global economy, because Iran has blocked the Strait of Hormuz, the waterway through which around 20% of the world’s oil formerly passed on its way to customers from producers in the Persian Gulf. The surge in oil prices has been quickly reflected at gas stations and in the price of jet fuel.
The combination of slow growth and high inflation, or “stagflation,” threatens to become a headache for the ECB, whose policymakers left its benchmark interest rate unchanged Thursday even though inflation is now clearly above the bank’s target of 2%.
The expected rise in inflation is especially troubling, because it comes at a time of sluggish economic growth. The usual antidote to inflation is for the central bank to raise its benchmark interest rate, but that can slow growth by raising credit costs for buying things. If inflation is expected to be temporary, the typical decision is to look past it, because interest rate changes take months to have an effect on the economy.
On the other hand, if the central bank waits until inflation is built into the economy through higher prices for food, manufactured goods and through higher wage demands, it’s even harder to wring higher prices out of the economy with painful rate hikes.
So the ECB and other central banks are currently frozen in place, warily watching the inflation wave roll through the economy and holding off on both rate rises and rate cuts. The bank’s benchmark rate has been unchanged at 2% since June 2025.
The Bank of Japan and the U.S. Federal Reserve both left rates unchanged at meetings this week, and the Bank of England also held steady Thursday.
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