Surging oil prices driven by the Iran war pushed Europe’s inflation higher in April, while economic growth remained sluggish, according to official data on Thursday, creating a troubling mix for both consumers and policymakers at the European Central Bank (ECB).
Annual inflation in the eurozone – the 21 countries that use the shared euro currency – rose to 3% from 2.6% in March, fueled by a 10.9% increase in energy prices, the European Union statistical agency Eurostat reported Thursday.
Crude oil traded above $120 per barrel on Thursday, up from around $73 before the outbreak of the war on Feb. 28.
Meanwhile, eurozone growth for the first three months of the year disappointed, with a marginal increase in economic output of 0.1% over the quarter before.
The war is dealing a huge shock to the global economy because Iran has blocked the Strait of Hormuz, the waterway through which around 20% of the world’s oil formerly passed on its way to customers from producers in the Persian Gulf. The surge in oil prices has been quickly reflected at gas stations and in the price of jet fuel.
Rising inflation has raised concerns that it may become built into the economy along with slow or nonexistent growth, a policy conundrum dubbed “stagflation” that leaves central banks like the ECB with few attractive choices. The usual antidote to inflation is for the central bank to raise its benchmark interest rate, but that can slow growth by raising credit costs for buying things.
ECB policymakers left their benchmark interest rate unchanged Thursday, even though the annual rate of inflation is now clearly above the bank’s target of 2%. The bank’s benchmark rate has been unchanged at 2% since June 2025.
ECB President Christine Lagarde said at a post-decision news conference at the bank’s headquarters in Frankfurt that the bank’s governing council had debated a rate rise on Thursday. She said the council would revisit the bank’s stance with new information at the next meeting on June 11, without committing to any particular path for rates.
Although some economists have used the term recently, she said the eurozone was not facing stagflation like that afflicting Western economies after the oil shocks of the 1970s.
Lagarde said the situation today was not comparable, with inflation less ingrained and a stronger labor market supporting an economy that is not in recession. She said the term was “something that I park in the ’70s… this is not something we’re seeing for the moment.”
“We don’t apply that flashy term, ‘stagflation,’ to the circumstances that we have.”
Western economies suffered high inflation after twin oil shocks from the 1973 Arab oil embargo against the US and the 1979 Iranian revolution – bad memories revived by the Hormuz closure.
Other central banks are also on pause. The Bank of Japan (BOJ) and the U.S. Federal Reserve (Fed) both left rates unchanged at meetings this week, and the Bank of England (BoE) also held steady on Thursday.
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