Inflation across the eurozone soared to 3% in April, driven by rising energy prices linked to the Iran war, while economic growth in the single currency bloc stumbled, official data showed on Thursday.
Inflation Surge
Consumer prices in the eurozone rose by 3% in the year to April, according to Eurostat, the European Union's statistics body. This marks an increase from 2.6% in March and 1.9% in February, pushing inflation further above the European Central Bank's 2% target.
The main driver was energy prices, which surged by 10.9% year on year, accelerating sharply from 5.1% in March. Services inflation slowed to 3.0%, while food, alcohol, and tobacco prices rose by 2.5%, and industrial goods prices increased by 0.8%.
The European Central Bank left interest rates unchanged on Thursday afternoon, as it grapples with the conflicting pressures of rising prices and slowing growth.
Growth Stumbles
Eurostat also reported that economic growth across the eurozone slowed to 0.1% in the first quarter of the year, down from 0.2% in the previous three months. The sluggish performance reflects the impact of higher energy costs and geopolitical uncertainty.
Among individual countries, Germany defied expectations with 0.3% growth in the first quarter. Carsten Brzeski, an economist at ING, said: "Almost exactly one year after the new German government – under Chancellor Friedrich Merz – came into office, today’s data suggests that the German economy is better than its reputation implies." However, he warned that the outlook remains fragile due to the Middle East conflict and soaring energy prices, combined with a lack of structural reforms and a clear strategy to restore competitiveness.
France recorded no growth in the first quarter. Its national statistics body, Insee, attributed this to a negative contribution from foreign trade, a decline in household consumption, and sluggish production growth.
Impact on Businesses
The rising energy costs are also hitting major companies. Air France-KLM recently cut its forecasts due to a $2.4 billion increase in its fuel bill. The airline industry is particularly vulnerable to oil price spikes, which are being exacerbated by the Iran war.
Economists warn that the combination of high inflation and low growth, often referred to as stagflation, poses a significant challenge for policymakers. The ECB faces a delicate balancing act between controlling inflation and supporting the economy.
