Inflation Hits 3% in Europe: In April, annual inflation across the 21 eurozone countries rose to 3%, up from 2.6% in March, driven primarily by a 10.9% increase in energy prices. The rapid surge in energy costs follows the escalation of war in Iran, which has disrupted oil supply and caused crude prices to exceed $120 per barrel
Fill up your car. Book a flight. Heat your home. Across Europe right now, each of those ordinary acts costs noticeably more than it did two months ago — and the reason is a war being fought thousands of miles away.
April’s inflation figures for the eurozone, released Thursday, tell a stark story. Annual inflation climbed to 3.0%, up from 2.6% in March, driven almost entirely by a 10.9% surge in energy prices. Oil, which was trading around $73 a barrel before Iran’s war began on February 28th, is now sitting above $120. Every cent of that increase eventually finds its way to a petrol station forecourt or an electricity bill somewhere in Europe.
The culprit, as it has been for weeks, is the Strait of Hormuz — the narrow waterway through which roughly a fifth of the world’s oil once flowed freely. Iran’s effective blockade of the strait hasn’t just disrupted shipping routes. It has sent a shockwave through the entire global economy, and Europe, heavily dependent on energy imports, is feeling it acutely.
Growing Slower, Paying More
If rising prices were the only problem, it would be difficult enough. But Europe is facing something more troubling: the economy is barely moving at the same time.
Eurozone GDP grew by just 0.1% in the first quarter of the year — a number so small it barely registers as growth at all. Slow growth and rising inflation arriving together have a name that economists use with a kind of quiet dread: stagflation. It’s the economic equivalent of running a fever while also feeling exhausted. The usual medicines don’t quite work.
Normally, when inflation rises, a central bank raises interest rates to cool spending and bring prices back down. But when the economy is already sluggish, raising rates risks tipping it into an outright recession. It’s a trap — and the European Central Bank, which meets Thursday and is widely expected to leave its benchmark rate unchanged at 2%, finds itself squarely in the middle of it.
The Frozen Central Banks
The ECB is not alone in its paralysis. This week has seen a remarkable parade of inaction from the world’s most powerful financial institutions. The Bank of Japan held. The U.S. Federal Reserve held. The Bank of England held. Now the ECB holds too.
They are all, in their own way, doing the same thing: watching the inflation wave approach and trying to decide whether to fight it or wait it out.
The logic for waiting is reasonable, on paper. Interest rate changes take months to ripple through an economy, so raising rates today to fight an oil shock that might ease tomorrow could end up doing more harm than good. If this inflation is temporary — a war premium that fades once the Strait reopens — then the smart move is to sit tight and let it pass.
But that logic carries a serious risk. If businesses start raising prices across the board, if workers start demanding higher wages to keep pace, if inflation becomes expected rather than exceptional — then it embeds itself into the fabric of the economy. And once that happens, getting it back out is far more painful and far more costly.
The ECB’s benchmark rate has sat at 2% since June 2025, a level set in calmer times for a calmer world. Whether that rate is still appropriate for the world Europe finds itself in today is a question nobody can confidently answer.
Ordinary People, Extraordinary Pressure
Behind all the economic jargon and policy debates are millions of European households quietly doing the maths at the end of each month and finding the numbers don’t quite add up the way they used to.
The surge in jet fuel prices has pushed up airfares. Energy bills are climbing again just as many families had started to breathe easier after the inflation shocks of recent years. And at the petrol pump, the war’s cost is visible in bright, unavoidable numbers every single day.
The ECB’s official inflation target is 2%. Europe is now at 3% and, if oil prices keep rising, likely heading higher. The bank was supposed to be in a gentle cutting cycle by now, gradually easing borrowing costs as inflation retreated toward its goal.
Instead, it finds itself frozen — not by choice, but by circumstance — waiting on a war, a waterway, and decisions being made in Tehran that no European policymaker can influence or predict.
The Iran war is not Europe’s war. But its economic consequences very much are. And until the Strait of Hormuz reopens, or oil prices find a new ceiling, or the conflict finds some kind of resolution, Europe’s consumers and its central bankers will be living with the same uncomfortable reality: more pain at the pump, less room to manoeuvre, and no clear end in sight.