Inflation in the eurozone saw the steepest monthly increase since late 2022 and soared past the European ​Central Bank’s (ECB) 2% target in March as surging energy costs amid the Iran war drove up headline prices, according to official figures released Tuesday.

The annual rate for the 21 countries using the euro currency jumped to 2.5% compared to 1.9% for February before the war started and blocked supplies of oil and gas from the Persian Gulf.

Energy prices increased 4.9% in March compared to a 3.1% decline in February, data from Eurostat, the EU’s statistics agency, showed.

Oil prices have nearly doubled as a result of the Iran war and the ECB is now debating whether to raise interest rates to prevent this surge from ​becoming entrenched in the price of other goods and services.

“The previously price-stable environment is saying goodbye” said Alexander ​Krueger, ⁠chief economist at Hauck Aufhaeuser Lampe. “What matters is that this inflationary dirt does not feed through into the core rate.”

A closely-watched figure on underlying inflation, which excludes volatile food and energy, meanwhile, fell to 2.3% from 2.4%, Eurostat data showed.

“Looking ahead, although this was the biggest monthly increase in headline inflation since late 2022 it tells us little about how far headline inflation will rise or how much it will feed through to core and services inflation,” said Andrew Kenningham, chief Europe economist at Capital Economics.

The war’s impact on prices has already hit home at the vast Trionfale indoor market in Rome just north of the Vatican, where vegetable stand owner Anna Caruso said the higher cost of fuel was being reflected in prices for zucchini, eggplant and fruit.

“If the price of fuel increases, those who transport will increase the general price,” she said. “With many items, they say, I can’t afford this… and shift toward the cheaper items.”

Some prices were higher due to some produce not being in season, said stand owner Paola Ianzi, “but the increase is also partially due to the war because diesel and fuel increased and those who transport fruit and vegetables need to compensate that.”

Food price inflation came in at a relatively moderate 2.4% while services, the single largest item in the consumer price basket and the key gauge for domestic inflation, rose 3.2%.

ECB head Christine Lagarde has said that businesses may be quicker to raise prices during this outbreak of inflation due to bitter memories of the last episode of higher prices in 2022, when inflation rose to double digits. Russia cut off most supplies of natural gas to Europe and oil prices rose, sending energy costs through the roof.

Iran has blocked most of the tanker traffic through the Strait of Hormuz, the waterway through which some 20% of the world’s oil and gas typically passes. That is raising the prospect of sharply tighter markets for fuel in the coming weeks and months.

Hike or look past?

Basic economic theory argues that central banks should look past one-off price shocks generated by supply disruptions, especially because monetary policy works with long lags.

But a quick rise in energy inflation can easily broaden out if companies start building this into selling prices and workers begin demanding higher wages for the loss of disposable income.

Germany’s leading economic institutes cut their growth forecasts for this year and next in Europe’s biggest economy, while sharply raising their inflation forecasts in response to the Iran war, underscoring the ⁠drag ⁠the conflict is expected to exert on the economy.

High energy prices should make other goods more expensive and push up core inflation, said Commerzbank’s chief economist Joerg Kraemer, forecasting headline inflation will rise above 3% by May unless the war ends quickly.

The public may also start doubting the ECB’s resolve if it remains idle, firming the case for rate hikes even in the event of large but not so persistent inflation episodes, Lagarde said last week. Financial markets now see three interest-rate hikes from the ECB this year, with the first in either April or June.

“The mounting inflation pressure suggests that the ECB will raise its key interest rates in April or, at the latest, in June,” Kraemer said.

While some policymakers such as the influential Bundesbank head Joachim Nagel said a rate hike as soon as April was an option, others, including ECB board ⁠member Isabel Schnabel, have warned against hasty action.

But policymakers agree that the ECB must act if energy starts generating second round price pressures, especially since domestic inflation had been above 2% for years.

“The risk of a policy mistake is now substantial on either side of the incoming stagflation shock,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

If governments cushion ​the blow from higher prices with tax cuts, subsidies or cash handouts, central banks may have to tighten policy more aggressively, but if they leave households to ​absorb the shock, economic growth could weaken sharply and eventually force rate cuts, Vistesen said.

Ghosts of 2022

Part of the issue ⁠is that the ECB ‌was late in ‌recognizing the inflation problem in 2021/22, arguing for months that the surge was transitory and would pass. It ⁠only raised rates when price growth hit 8%, forcing the central bank into its steepest tightening ‌cycle in its history.

“Consumers expect another rough ride, the past shock still fresh in memory,” said Bert Colijn, chief economist for the Netherlands at ING, adding that inflation expectations just increased to ​levels seen in the early 1990s and during ⁠the first half of 2022.

But the bloc is now in a very different position, so comparisons with 2022 are ⁠not entirely valid.

Rates are already higher, budget policy is tighter, the labor market has been weakening for months and there is no pent-up demand created ⁠by pandemic-era lockdowns.

The ECB will next ​meet on April 30.

“We find it hard to see the ECB moving at the next meeting at the end of April,” said Carsten Brzeski, global head of macro at ING. “Unless the ghosts of 2022 are really keeping policymakers awake at night.”

Türkiye is well-positioned to bolster its role in global value chains, attract investment and enhance its economic resilience, according to the World Economic Forum (WEF) on Monday.

The statement said that the WEF Türkiye Country Strategy Meeting was held in Istanbul under the chairpersonship of President Recep Tayyip Erdoğan.

It said that the meeting brought together prominent figures from global politics and business, adding: “As shifting geopolitical dynamics and economic fragmentation reshape global priorities, the meeting came at a critical time for dialogue.”

Emphasizing that Türkiye serves as a bridge between Europe, Asia and the Middle East, the WEF said: “Türkiye plays a strategic role amid evolving geopolitical dynamics and shifting trade patterns.”

The statement highlighted Türkiye’s strong industrial base and said the country is a major G-20 economy with growing influence on the global stage. It added that Türkiye also provides an important anchor for trade, investment and manufacturing networks.

The WEF underlined Türkiye’s unique connectivity across regions and access to major markets, saying: “Türkiye is well-positioned to strengthen its role in global value chains, attract investment and advance economic resilience.”

It added that the WEF Türkiye Country Strategy Meeting brought together leaders from different sectors and advanced Türkiye’s goal of deepening partnerships, reinforcing its global economic role and cementing its position as a key growth connector in an interconnected world.

The statement noted that, in addition to Erdoğan, Vice President Cevdet Yılmaz, Foreign Minister Hakan Fidan, Treasury and Finance Minister Mehmet Şimşek, Energy and Natural Resources Minister Alparslan Bayraktar, and the governor of the Turkish central bank, Fatih Karahan, also attended the meeting.

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Türkiye officially launched 5G technology on Tuesday in what President Recep Tayyip Erdoğan said will mark the beginning of a new era not only in communications but in all other industries.

Commercial 5G services are scheduled to begin as of Wednesday and are expected to cover the whole country within about two years, according to officials.

Speaking at a launching ceremony, Erdoğan said the next-generation services would strengthen Türkiye’s competitiveness, improve productivity in communications, technology, energy and manufacturing and reinforce the country’s digital independence.

He said it would open a new chapter across transportation, health care, agriculture, manufacturing, the economy and education.

The technology is expected to enable users to experience significantly higher speeds and lower latency across all forms of internet use, supporting wider adoption of advanced digital services.

Erdoğan said sovereignty in today’s world is no longer limited to geography and physical borders, arguing that technological capability, cybersecurity and control over data have become central to national strength.

“In today’s data age, political stability, economic independence, military deterrence and digital sovereignty are inseparable,” he said.

He argued that countries seeking influence and credibility in an increasingly competitive global environment must invest in cyber technologies, cybersecurity measures and digital infrastructure.

Erdoğan said the collection, processing and protection of data now play a critical role in national security, particularly amid recent conflicts in places such as Gaza, Lebanon and Iran.

“The wars and conflicts occurring in our immediate vicinity, particularly in Lebanon, Gaza and Iran recently, have once again demonstrated the importance of cybersecurity,” he noted.

“If you want to be strong, deterrent, and respected on the global stage, you must accelerate your efforts in cyberspace and take the necessary cybersecurity measures.”

Cybersecurity seen as part of national defense

The president said 5G should be viewed not only as a communications technology but also as part of a broader digital sovereignty and national security strategy that includes data centers, cloud infrastructure, artificial intelligence and cybersecurity capacity.

“If you can protect your borders and airspace but cannot protect your cyber homeland and the data that is an inseparable part of it, then you have a serious weakness in your sovereignty,” Erdoğan said.

He said the government has spent the last 23 years building the foundations for this transition through investments in digital infrastructure and cybersecurity.

Türkiye’s fiber optic network has expanded from 81,000 kilometers in 2002 to 657,000 kilometers (408,240 miles) as of the third quarter of 2025, Erdoğan said.

During the same period, the number of broadband subscribers rose from 3,000 to 98 million, while mobile phone subscribers increased from 23 million to nearly 100 million.

Mobile use and cybersecurity efforts expand

Erdoğan said more than 55 million people in Türkiye currently use secure internet services, while total monthly voice traffic through mobile and fixed-line networks has reached 82 billion minutes.

Türkiye ranks first in Europe with an average monthly mobile usage time of 494 minutes, he added.

The 5G will be rolled out in all 81 provincial centers initially before becoming available across the country within two years, said Erdoğan.

The president also highlighted the work of the Cybersecurity Directorate, established last year to protect communications systems, critical infrastructure and national networks from cyber threats.

He said law enforcement, intelligence agencies and other public institutions are also developing contingency plans and response mechanisms against potential cyber risks.

Erdoğan added that the government is closely monitoring debates over foreign-owned messaging and calling applications, particularly since the conflict in Gaza, and will gradually introduce additional measures to strengthen the security of data belonging to state institutions.

Digital transformation

Also addressing the ceremony, Abdulkadir Uraloğlu, the transport and infrastructure minister, echoed the president’s view that 5G would transform Türkiye’s economy, industry, healthcare, transportation and agriculture.

Noting that information technology, artificial intelligence, cybersecurity, and high-speed connectivity play a vital role in countries’ economic development, competitiveness and national security, Uraloğlu said: “As Türkiye, we have taken decisive steps over the past quarter-century by making unique infrastructure investments.”

He stressed that more inclusive, fast and resilient communication systems need higher digitalization capacity.

The minister stated that 5G is not just about faster internet, but is also the key to a smarter, safer and more efficient future.

Noting that 5G, with data transfer speeds 10 times faster than the currently used 4.5G, ultra-low latency and the capacity for massive device connectivity, will position Türkiye at the center of digital transformation, he stated: “With this technology, we are providing a new infrastructure that will transform every aspect of life.

“In transportation, road safety will improve with fully autonomous driving and smart transportation systems, and traffic will become more efficiently manageable.”

He noted that production processes will be optimized through smart factories, autonomous robots and real-time data analysis in the industry field.

In smart cities, innovative solutions will emerge in every area, from energy management to parking systems, he said, adding that students will have access to world-class education through high-resolution and augmented reality-supported content.

Türkiye’s central bank chief on Tuesday cautioned about the impact of the fallout from the Iran war on its fight against inflation, noting that in such situations it is a “natural choice” to turn to gold-based transactions to support liquidity.

Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan said the monetary authority would maintain the needed tight policy to continue the disinflation process.

Annual inflation was 31.5% in February after a gradual decline from 75% in 2024, the year in which the CBRT began slowly cutting rates. But expectations have risen amid the war, largely due to soaring global energy prices.

In response, the central bank has halted its easing cycle with the main rate at 37%, lifted its overnight rate by about 300 basis points to near 40%, and undertaken sales and swaps of foreign exchange and gold reserves to support the Turkish lira.

In the last two weeks, the bank began swapping or selling billions of dollars worth of gold reserves, marking its most aggressive use of the precious metal since 2018.

The CBRT has doubled its gold reserves that were 377 tons back in 2016, Karahan said on Tuesday. As of this month, the share of its gold reserves in total reserves exceeded 60%.

“Therefore, using gold-backed transactions during periods when foreign exchange liquidity needs to be supported is a perfectly natural choice,” Karahan told Anadolu Agency (AA).

He said it’s not a correct approach to assess such transactions with a mere profit-loss perspective. “Our priority is financial stability and policy effectiveness,” he stressed.

‘Proactive’ approach

The CBRT is pursuing a “proactive, flexible and controlled” approach to its reserve-management and liquidity tools, Karahan said. “The objective of all the steps we take is to support price stability and reinforce financial stability,” he added.

Karahan said the pressure on reserves emerges as a natural outcome of changes in the global risk appetite. In this context, he said they are taking measures to limit the impact of this risk aversion on the inflation outlook. “With the outbreak of war, we began funding at the upper band,” he noted.

The central bank started to conduct lira-settled foreign exchange forward selling transactions with residents and brought forward its bond purchases to prevent a possible outflow from money market funds.

“These measures have helped maintain the attractiveness of the Turkish lira in domestic markets. While there has been a moderate domestic demand for gold and foreign currency during this period due to falling gold prices, residents’ foreign exchange demand has remained limited compared to previous stress periods,” said Karahan.

“I would like to reiterate that we are facing an external situation which adversely affects our fight against inflation.”

The ongoing tensions in the Middle East, according to Karahan, have driven a sharp rise in energy prices, adding cost-push pressure on inflation and indirectly affecting prices across sectors.

In the medium term, he said the war is expected to have further side effects on inflation; cost- and supply-side disruptions already creating additional pressures.

But he stressed policymakers are “determined to ensure the tightness required for the continuation of the disinflation process.”

FX-based lira swap transactions

Karahan and Treasury and Finance Minister Mehmet Şimşek will discuss their strategy on Wednesday and Thursday with foreign investors in London, where Barclays is hosting both group and one-on-one events, bankers said.

One investor who is attending said they will likely face questions about monetary policy given Türkiye’s heavy reliance on energy imports and about the central bank’s ability to sustain the slow rate of lira depreciation. The investor declined to be named.

In its latest step, which aims to give lenders flexibility managing liquidity, the central bank restarted foreign exchange-based lira swap transactions with buyside auctions worth $10 billion on Tuesday.

To curb price hikes, authorities earlier this month introduced a “sliding-scale” system, which adjusts the special consumption ​tax (ÖTV) on fuel products and prevents higher oil prices from being fully passed through to consumers.

Karahan said their calculations showed the system reduces the impact of oil prices on inflation to one-third.

He still stressed analyses that he said indicate that a permanent 10% increase in oil prices adds approximately 1.1 percentage points to consumer inflation over a year.

“So far, we have promptly introduced measures to reduce inflationary effects. Currently, uncertainties remain as to the course of the war,” Karahan said.

“We will ensure the tightness required to contain the inflationary effects of the developments through expectations and pricing behavior.”

Cooling of economic activity

Karahan went on to say that they expect the rising energy costs, external uncertainties and the resulting potential weakening of external demand to create a downward pressure on economic activity.

And the growing uncertainties will also have an impact on investment appetite and private consumption, he added. “Our analyses suggest that a 10% supply-side increase in oil prices leads to a 0.4-to-0.7 percentage points of decline in the growth rate over a one-year period,” he said.

Recent developments, Karahan said, will affect the current account balance diversely through energy and non-energy items.

“Our analyses show that a $10 increase in oil prices deteriorates the one-year net energy balance by approximately $3 billion to $4 billion. In case of a parallel rise in natural gas import prices as well, this impact may go up to $5 billion,” he said.

Regarding non-energy items, Karahan said a potential moderation in global demand would have an upward effect on the current account deficit through exports and tourism. “However, cooling of economic activity will affect the trade balance favorably,” he noted.

The level of the current account deficit is currently below its historical average, he added. “We think that the possible deterioration of the current account balance amid recent developments will be manageable.”

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Türkiye’s unemployment rate rose 0.3 percentage points month-over-month to 8.5% in February, official data showed on Tuesday.

The number of unemployed people rose by 133,000 to 2.98 million, the Turkish Statistical Institute (TurkStat) said.

The unemployment rate was estimated 6.9% for men and 11.6% for women, the TurkStat stated.

The data showed the labor force participation rate increased 0.3 points to 52.6% in February, while a seasonally adjusted measure of labor underutilization rose 0.1 percentage points to 29.9%.

The TurkStat noted that the number of persons in the labor force realized as 35.14 million, up by 286,000 over the same period.

The youth unemployment rate – aged between 15 and 24 – was at 15.8%, up 1.4 percentage points compared to the previous month, according to the data.

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China’s factory activity expanded in March following two months of contraction, the government data showed on Tuesday, but analysts suggest that a prolonged impact of the Iran war could weigh on growth.

The official manufacturing purchasing managers index (PMI) rose to 50.4 from 49 in February, the National Bureau of Statistics reported, beating economists’ expectations and notching the strongest reading in a year. PMI is measured on a scale of 0 to 100, and a reading above 50 indicates expansion.

While the latest official data covered a period after the Iran war began on Feb. 28, analysts say the impacts of surging energy costs have not yet been fully seen. “So far, supply disruptions have not occurred in a material way,” said Jacqueline Rong, a chief China economist at BNP Paribas.

A years-long property sector slump in China has also weighed on economic growth and weakened domestic consumption and investment demand in China, the world’s second-largest economy after the U.S.

To help drive its economy, China has been reliant on growing exports, especially to regions such as Southeast Asia and Europe, which propelled its trade surplus last year to a record $1.2 trillion despite higher U.S. tariffs.

China’s export engine could hit headwinds as the Iran war drives up energy costs and disrupts supply chains, with most maritime traffic blocked from passing the Strait of Hormuz, through which roughly a fifth of the world’s oil normally passes.

The extent of the impact will depend on how long the energy flows from the Middle East are cut off, said BNP Paribas’ Rong. “If it is months, rather than weeks, then the supply disruptions, not just from oil, but also from the shortage of many chemical products – such as rare gases – would manifest itself in disrupting industrial production and services,” she said.

China’s exports could also suffer if overall global growth takes a serious hit from the energy crisis, Rong said. Analysts say, for example, that higher global inflation could weaken consumption demand for Chinese goods.

Chinese leaders in early March unveiled an economic growth target of 4.5% to 5% for this year, a slightly lower goal than the “around 5%” last year and the lowest growth target since 1991.

For now, China’s economy “appears to have weathered” the energy shock from the Iran war well, wrote Zichun Huang, China economist at Capital Economics, in a recent research note, although she also cautioned it is “likely that the fallout from the Iran war will grow over the coming months.”

With China’s exports to the U.S., its largest trading partner, in decline over the past months, economists are closely watching for positive signs in trade relations between Washington and Beijing as U.S. President Donald Trump is expected to meet with Chinese leader Xi Jinping in May.

Some analysts say lower U.S. tariffs following a recent Supreme Court ruling against Trump’s wide-reaching global tariffs could give China a small boost to exports and factory activity.

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