Inflation in the euro area has chosen the worst possible moment to reawaken. In February, consumer prices rose by 1.9% year-on-year, up from 1.7% in January, defying expectations of stability and brushing once more against the European Central Bank’s 2% target. Economists had anticipated calm. The data delivered discomfort. More unsettling still was the movement beneath the surface. Core inflation, excluding food and energy, accelerated to 2.4%. Services — the measure central bankers scrutinise with almost obsessive intensity — climbed to 3.4%, signalling that domestic price pressures have not fully retreated. Disinflation, it appears, is neither linear nor obedient. Part of the surprise came from Italy, where inflation rose to 1.6%, exceeding forecasts. The Winter Olympics inflated restaurant and accommodation prices by 6.1%, a reminder that even global sporting events can ripple through the monetary narrative. Yet the true story lies far from Milan.

Energy has returned to centre stage. As military operations intensify around Iran, oil and gas markets have reacted with brutal efficiency. European gas prices have surged by more than 70% in recent days following Qatar’s suspension of production at the world’s largest LNG export facility after Iranian drone attacks. Brent crude has pushed above $80 a barrel after sharp intraday spikes. Europe’s vulnerability, long acknowledged but insufficiently resolved, has reasserted itself. Philip Lane, the ECB’s chief economist, has stated that the Bank is closely monitoring developments. An earlier internal scenario had already modelled the consequences of a Middle Eastern energy disruption: a sharp rise in energy-driven inflation coupled with a pronounced contraction in output. The feared combination — prices rising while growth falters — no longer belongs to abstract stress testing.

For now, the ECB has maintained borrowing costs at 2%, confident that inflation would return to target and that the euro area’s 21 economies could sustain moderate expansion. That confidence is now conditional. The Middle East conflict adds to an already fragile backdrop shaped by US tariffs, a stronger euro, and the possibility of redirected Chinese exports weighing on domestic producers. Individually manageable, collectively destabilising. Markets have adjusted. Traders now assign roughly a one-in-four probability to a quarter-point ECB rate increase this year — a notable shift from earlier expectations of continued stability. Belgian central bank governor Pierre Wunsch has urged caution, warning against overreacting to volatile energy prices. Yet he acknowledged that a sustained oil shock would likely prove inflationary overall. Should higher energy costs persist, the ECB will be compelled to reassess its trajectory.

More than half of euro-area member states continue to register inflation above 2%, underscoring the bloc’s structural asymmetry: a single monetary policy attempting to accommodate divergent economic realities. Germany has moderated. Others have not. The tension endures. Much will depend on the duration of the conflict. A short-lived disruption may leave only statistical turbulence. A prolonged energy shock, however, would revive Europe’s fundamental weakness — dependence on imported energy at precisely the moment it seeks strategic autonomy. The ECB will update its quarterly forecasts within weeks. Its December projection of 1.9% inflation for the first quarter now appears precarious. What was once assumed to be a steady glide path back to target is again subject to geopolitical forces beyond Frankfurt’s control. An oil shock does more than lift prices. It tests the intellectual architecture of monetary policy. Europe believed it had escaped the inflationary spiral that followed the pandemic. Yet geopolitics has returned volatility to the equation. Prudence is no longer optional. It is survival.