Euro area: Oil shock lifts inflation outlook – Commerzbank

Commerzbank’s Dr. Vincent Stamer notes Euro area inflation rose to 1.9% in February, with core inflation at 2.4%, both above expectations. The bank links part of the increase to higher energy prices following the conflict in Iran and sees Euro area inflation potentially reaching around 2.4% in Q2 2026, or close to 3% if Brent stabilizes near USD 100.

Oil-driven risks to Euro inflation

"Inflation in the euro area rose to 1.9% in February from 1.7% in January. Core inflation, excluding energy, food, alcohol and tobacco, also rose by two-tenths to 2.4%. Economists had expected inflation to remain unchanged. In some respects, the war in Iran is already casting its shadow: energy prices had already risen in February due to increased tensions."

"With the start of military strikes by the US and Israel against Iran, the price of Brent crude oil also jumped noticeably to over $80 per barrel. Initially, the rise in oil prices is likely to continue to affect gasoline and heating oil prices – around two-thirds of the inflationary effects in the first three months are due to direct price increases for fuels and other energy prices. In the slightly longer term, however, the core rate – i.e., inflation excluding volatile food and energy prices – is also likely to rise due to indirect effects."

"At the same time, crude oil futures indicate that market participants expect oil prices to consolidate by the end of the year. Our assumption for the course of the conflict is also that it will not last for many months. Based on this assumption, inflation in the euro area could rise to around 2.4% in the second quarter."

"If, on the other hand, the conflict continues to escalate and the oil price settles permanently at USD 100, inflation could be around 3% for the rest of this year."

"If the war in Iran continues, inflation in the euro area is likely to exceed the ECB's expectations. Nevertheless, we do not anticipate interest rate hikes by the ECB."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)