Inflation in the 21 countries that share the euro jumped to 1.9% from 1.7% a month earlier, outpacing expectations for 1.7%, as rising food and services costs offset low energy prices, data from Eurostat showed

International News via Reuters:

Euro zone inflation rose more than expected last month but remained below the European Central Bank’s 2% target, fresh data showed on Tuesday, before a likely hit from surging oil and gas prices.  

Inflation in the 21 countries that share the euro jumped to 1.9% from 1.7% a month earlier, outpacing expectations for 1.7%, as rising food and services costs offset low energy prices, data from Eurostat showed.

Underlying inflation, which excludes volatile fuel and food prices meanwhile increased to 2.4% from 2.2% as services inflation once again accelerated more than predicted.

The figures, though surprisingly high, carry only modest relevance now as policymakers will be focusing on how war in the Middle East and the resulting more than 10% surge in oil prices could affect inflation and economic growth. 

Fuel retailers pass surging costs onto drivers in a matter of only days, so the price impact could be quite immediate, if the conflict continues to limit energy production or shipments beyond just a few days. 

JP Morgan argues that a 10% increase in Brent crude oil prices calculated in euros would lift headline inflation by 0.11 percentage points within three months.

On that basis, the energy price move seen in the past week would lift inflation by about 0.2 percentage points, if prices stabilised at their current level, it argued.

However, inflation was projected to run below target in both 2026 and 2027, so an increase, if indeed contained, may not put immediate pressure on the ECB to raise interest rates, especially since policy acts with long lags and does little to dampen price pressures in the near term.

Indeed, financial markets see no change in the ECB’s 2% deposit rate all year and there has also been no meaningful uptick in longer-term inflation expectations, indicating that the war was unlikely for now to dislodge the ECB from its ‘good place’.

“Given that headline inflation is still expected to remain below 2% in 2026–27, there is no immediate need for ECB policy action,” Societe Generale said in a note.

“Only a persistent and substantially larger increase in oil prices — well above $10/bbl — and evidence of durable second‑round effects would justify a tightening response,” it added.

But the ECB may not be as patient as it was in 2022, when the bank was late in recognising the inflation surge and had to lift rates at a record pace to contain prices.

The ECB is also likely to be more alert as domestic inflation has been holding above target for years and only an earlier fall in oil prices pulled the measure below target. 

Such a setting would suggest that the ECB stays put as long as the price surge looks like a one-off but would act quickly if longer-term expectations or wage-setting behaviour started to change. 

The bank will next meet on March 19 and a policy change is highly unlikely as the bank only acts on persistent changes in financial conditions and would need more evidence that the war had caused permanent changes in how the economy works.

Reporting by Balazs Koranyi; Editing by Kate Mayberry

The U.S.-Israeli war on Iran, which is widening to other countries in the region, is seen as threatening to push up inflation and make a dent in Europe’s already meagre economic growth

International News via Reuters:

The European Central Bank should keep its options open in setting interest rates as the fallout from the Iran conflict, including a possible rise in inflation, will depend on how long it lasts, ECB policymaker Yannis Stournaras said on Tuesday.

The U.S.-Israeli war on Iran, which is widening to other countries in the region, is seen as threatening to push up inflation and make a dent in Europe’s already meagre economic growth by making energy more expensive and disrupting supply of other chemicals.

Stournaras, the Greek central bank governor, said a prolonged conflict would raise inflation but it was still too early to draw conclusions.

“If negotiations start tomorrow, there will be de-escalation,” he said in a phone interview. “If it continues, there will be upward pressure on inflation. I do not exclude either. So, we should show flexibility.”

Israeli Prime Minister Benjamin Netanyahu said the war on Iran was “not going to take years”. U.S. President Donald Trump initially projected the conflict to last four to five weeks, but has since sought to justify a broad, open-ended war.

For now, however, Stournaras said the central bank should sit tight and watch as the conflict unfolds.

“Its impact on inflation and output depends on the duration and the depth of the armed conflict,” he said.

“As we have no visibility on either of them and taking into account the outlook of inflation, in my view we should not rush to change any of the monetary policy parameters now but be alert and monitor the situation very carefully.”

He described the conflict as “another serious supply-side shock” hitting the euro zone economy which has already been weighed down by an energy shock following Russia’s invasion of Ukraine in 2022 and U.S. trade tariffs last year.

Reporting by Francesco CanepaEditing by Ros Russell

The reported French aid to the island follows Greece’s offer of assistance hours after RAF Akrotiri, a British sovereign base, was targeted in two separate drone incidents on Monday

International News via Reuters:

France plans to send anti-missile and anti-drone systems to Cyprus after a British air base on the island was attacked by drones, the semi-official Cyprus News Agency (CNA) said on Tuesday.

France would send anti-missile and anti-drone systems, as well as a frigate, CNA reported. It said French President Emmanuel Macron communicated the intention to Cypriot President Nikos Christodoulides early on Tuesday. 

A Cypriot government source, speaking on condition of anonymity, confirmed the report. The French defence ministry did not immediately respond to a request for comment.

The reported French aid to the island follows Greece’s offer of assistance hours after RAF Akrotiri, a British sovereign base, was targeted in two separate drone incidents on Monday.

In the first instance an Iranian-made Shahed drone crashed into the runway of the base, causing limited damage. Hours later two other drones were intercepted.

Senior Cypriot officials say the attack was carried out by an Iranian Shahed drone most likely fired by Iran-backed militant group Hezbollah from Lebanon. The officials have stressed that the base – considered sovereign British territory – rather than Cyprus, was the target.

Britain said on Sunday that it had accepted a U.S. request to use its military bases for “defensive” strikes against Iran, a day after the launch of a U.S. and Israeli military campaign against Iran, which triggered Iranian retaliation. British Prime Minister Keir Starmer later said Britain’s bases on Cyprus were not being used by U.S. bombers.

Cyprus has asked Britain that the bases only be used for humanitarian purposes.

Greece on Monday dispatched four F-16 fighter jets to the island. Two frigates, one equipped with its anti-drone Centauros jamming system, were also sailing to Cyprus.

Centauros, which has been successfully deployed against Houthi rebels attacking shipping lanes off Yemen, has the capability of detecting and incapacitating low-flying drones, such as the one which crashed into RAF Akrotiri and evaded radars, Cypriot defence sources said. 

Writing by Michele Kambas; Editing by David Goodman, Aidan Lewis