Inflation had been expected to come in at 2.6 per cent, but the figures are still above the European Central Bank’s (ECB) 2 per cent target. The rise largely reflects a sharp increase in energy prices since the Middle East conflict began, which has caused oil prices to spike. Eurostat said that the energy component of the inflation data is expected to have risen to 4.9 per cent in March, compared with 3.1 per cent in February.

ECB President Christine Lagarde said last week that the central bank was watching regional data closely and would respond with interest rate hikes if necessary.

The central bank has also revised its growth and inflation forecasts for the medium term and expects economic growth of 0.9 per cent in 2026, with headline inflation averaging 2.6 per cent for the year.

Financial markets now see three interest-rate hikes from the ECB this year, with the first in either April or June.

“This is a sharp and uncomfortable departure from the benign price environment the European Central Bank had, until recently, been enjoying,” Katy Stoves, investment manager at UK wealth manager , said that the longer the war drags on with higher inflationary pressures rising, the more likely it will be that the ECB will tighten monetary policy this year.

“Eurozone inflation is likely to peak above 3 per cent in the coming months. If the war continues to escalate, inflation could even rise briefly to well over 4 per cent,” Schmidt said. “However, the extent to which the energy crisis will impact inflation in the eurozone in the coming months also depends on the measures governments take. Reducing VAT on petrol or introducing price caps, both of which are currently under discussion in many member states, would curb the mechanical passthrough to inflation.”

“If the conflict in Iran has not subsided by the end of April, as we assume for our baseline forecast, and if the ECB feels the need to send a clear signal to the markets that, unlike in 2022, it will not react too late this time, the ECB may possibly increase its key interest rate at the end of April already,” he added.

The statement comes after central banks – the Bank of England (BoE), the European Central Bank, Bank of Japan and the US Federal Reserve – all kept interest rates unchanged last month, as expected, highlighting the severity of the Middle East conflict which has caused oil prices to surge.