The ongoing Mideast conflict has led to a significant surge in energy prices across Europe, with euro area annual inflation expected to rise to 2.5% in March from 1.9% in February, exceeding the European Central Bank’s 2% target. According to a flash estimate published by Eurostat, major euro area economies registered notable increases, with Germany climbing to 2.8% from 2.0%, France to 1.9% from 1.1%, and Spain to 3.3% from 2.5%.
Energy Price Increase
The surge was propelled by energy prices, which jumped to 4.9% from 3.1%, with Germany’s energy prices increasing by 7.2% year-on-year, marking the first rise since December 2023, data from the Federal Statistical Office (Destatis) showed. The French National Institute of Statistics and Economic Studies said energy prices in the country are projected to rise by 7.3% year-on-year in March, reversing a 2.9% decline in February.
Portugal also saw energy prices climb by 5.8% in March, after a 2.2% drop in February, prompting many Portuguese motorists to cross into Spain for cheaper fuel. Meanwhile, services inflation in the euro area eased slightly to 3.2% from 3.4%, prices for food, alcohol and tobacco edged down to 2.4% from 2.5%, while the core inflation, excluding energy, food, alcohol and tobacco, fell to 2.3% in March from 2.4% in February.
Impact on Food and Goods Prices
Although other main inflation categories have yet to show a pronounced effect, ING chief economist Bert Colijn warned that the recent surge in energy prices cannot be viewed in isolation. He noted that ongoing tensions in the Middle East pose upside risks not only to energy prices but also to food and goods prices, through fertiliser shortages and supply chain disruptions, as explained on the International Energy Agency website.
The longer these disruptions persist, he said, the greater the risk that both headline and core inflation will face broader upward pressure. This could have significant implications for South African consumers, who are already grappling with high fuel prices and a weakening rand, as the South African Reserve Bank monitors the situation, according to the South African Reserve Bank website.
- Energy prices in Europe have increased by 4.9% from 3.1%.
- Germany’s energy prices have risen by 7.2% year-on-year.
- France’s energy prices are projected to rise by 7.3% year-on-year in March.
