|

Euro area: Energy shock limits ECB hikes – Commerzbank

Commerzbank’s Senior Economist Dr. Vincent Stamer notes Euro area inflation rose to 2.5% in March, driven entirely by higher energy prices linked to the Iran War, while core inflation slipped to 2.3%. He argues the outcome matches the ECB’s mild scenario, implying at most one further rate hike as higher energy and fertilizer costs gradually lift core and food inflation over 2026.

Energy-driven spike but limited ECB response

"Despite the surge in energy prices, the actual inflation rates in March are most consistent with the ECB’s mildest scenario. This suggests that the ECB is unlikely to raise its key interest rates multiple times, as the market expects."

"Over the course of the year, however, the core rate will also rise due to higher energy prices – even if active hostilities cease in the next two months and the oil price begins to fall again. This is because the current rise in energy and fertilizer prices will feed through to the other main components of inflation with a certain lag. Thus, by the fourth quarter of this year at the latest, higher energy prices are likely to offset the slower rise in labor costs and cause the core rate to rise again."

"Two weeks ago, the ECB published its own scenarios for inflation trends in connection with the war in Iran. The mildest scenario in terms of inflation is based on the lower energy prices recorded on March 11. Two other scenarios assumed significantly higher energy prices."

"However, the March inflation rate released today most closely aligns with the ECB’s mild scenario, in which inflation in the euro area climbs only slightly above the 3% mark in the second quarter. This currently argues against multiple interest rate hikes by the central bank, as currently expected by the market."

"We expect the ECB to raise key interest rates once in April or at least signal a rate hike in June. The inflation rate for April will also be published on the day of the next ECB Governing Council meeting on April 30."

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

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

GBP/USD nudges higher above 1.3350 despite Middle East turmoil

The GBP/USD pair rebounds to near 1.3385 during the Asian trading hours on Thursday. However, the potential upside for the major pair might be limited amid cooler-than-expected UK inflation data and escalating tensions in the Middle East. Traders will take more cues from the UK Retail Sales report, which is due later on Friday. 


EUR/USD stabilizes near 1.1400 as markets focus on geopolitics

EUR/USD trades in a narrow channel at around 1.1400 on Wednesday. In the absence of high-impact data releases, escalating geopolitical tensions in the Middle East caps the pair's upside. On Thursday, the European Central Bank (ECB) will announce monetary policy decisions.

Gold is at a critical juncture as Middle East conflict widens

Gold snaps a four-day recovery early Thursday as widening Mideast conflict-led rallying Oil prices spur inflation fears. The US Dollar stays defensive amid potential USD/JPY sell-off, as ‘Yenternvention’ risks loom. Gold at a crossroads, awaiting Bear Cross confirmation on the daily chart, as RSI flirts with 50.

Australia unemployment rate set to steady at 4.4% in June, signaling strong job market

Australia will publish the June monthly employment report on Thursday at 01:30 GMT, and market participants expect a modest increase in job creation in the land Down Under. The Australian Bureau of Statistics is expected to announce that the country added 15K new jobs in the month, while the Unemployment Rate is forecast at 4.4%, unchanged from May.

Senate Republicans release updated CLARITY Act with new crypto ethics restrictions
Senate Republicans released an updated version of the Digital Asset Market CLARITY Act on Wednesday following briefing calls with stakeholders. The update adds a package of ethics restrictions targeting digital asset activities by public officials and their spouses. The revised legislation comes after negotiations between the White House and Republican senators Cynthia Lummis and Bernie Moreno.
US Dollar mid-year outlook: Exceptional currency, exceptional risks?
The US Dollar enters the second half of 2026 in a markedly different position from a year ago. The King currency has recovered, reflecting persistent US inflation, changing expectations for Fed policy, geopolitical tensions and renewed demand for defensive assets.