The preliminary CPI report for March sees headline annual inflation come in at 2.5%, just a touch softer than the 2.6% estimate. Still, it represents a notable bump to the 1.9% reading in February last month. The main cause for the jump is higher energy prices, as a result of the US-Iran conflict. Of note, energy prices were seen 4.9% higher than it was a year ago.
Other than that, food prices were seen up 2.4% compared to the same month one year ago. Meanwhile, services inflation was seen at 3.2% so that continues to remain a key sticking point for the ECB.
When looking at core prices though, the report was less worrying – at least for now. Core annual inflation was seen at 2.3%, missing slightly on estimates of 2.4%. That is also down a touch from the 2.4% reading in February but still above the 2.2% estimate from January.
While core prices are not showing a material jump just yet, it will eventually see spillover effects from broader inflation pressures in the euro area economy.
That especially if the war carries on for longer and higher energy prices become more entrenched into inflation expectations. That will eventually feed to input cost inflation in general and trickle down to consumers at some point.
As such, don’t be too quick to dismiss the jump in prices here. We’ve seen it all before with the Russia-Ukraine conflict. And ECB policymakers will be guarded in not wanting to repeat the mistake of calling inflation “transitory” again this time around.
