War and fuel prices push inflation up to 2.7% in March, the highest level since August
The war in the Middle East is already having an impact on prices, with year-on-year inflation rising by 0.6 percentage points in March to its highest level in seven months.
The Portuguese Statistics Institute (INE) estimates that the year-on-year inflation rate accelerated to 2.7% in March, a month in which the conflict in the Middle East drove up fuel prices and forced the main monetary institutions to revise their projections for price rises upwards.
According to data released on Tuesday by INE, the rate was 0.6 percentage points higher than that observed in the previous month. “The acceleration in the CPI [Consumer Price Index] is almost entirely explained by the rise in fuel prices”, it noted.
The core inflation indicator (the overall index excluding unprocessed food and energy) is estimated to have risen by 2%, a rate 0.1 percentage points higher than in the previous month.
“The change in the index for energy products rose to 5.8% (-2.2% in February) and the index for unprocessed food products recorded a change of 6.4% (compared with 6.7% in the previous month)”, the statistics office said.
In month-on-month terms — that is, compared with February prices — the change in the Consumer Price Index was 2%.
Meanwhile, the Portuguese Harmonised Index of Consumer Prices (HICP) is reported to have recorded a year-on-year change of 2.7% (2.1% in the previous month). The final CPI figures for March will be published on 13 April.
Central banks anticipate an acceleration
The war waged by the US and Israel against Iran, which began on 28 February, has sent shockwaves through the markets, particularly the energy markets, due to Iran’s blockade of the Strait of Hormuz, through which a fifth of the world’s oil trade passes. The price of a barrel of Brent crude, the benchmark for Europe, has exceeded $100, having traded as high as nearly $120.
The escalation of the conflict and the rise in crude oil and gas prices have forced the major central banks to revise their inflation forecasts upwards and cut their economic growth forecasts. They are now leaving the door open to interest rate rises, just as they were forced to do in response to the inflationary pressure caused by Russia’s invasion of Ukraine in February 2022.
In the Eurozone, the European Central Bank (ECB) has already warned that it now forecasts the economy to grow by 0.9% in 2026, compared with the previous forecast of 1.2% released in December, and by 1.3% in 2027. As for inflation, whilst Frankfurt had forecast a rate of 1.9% for this year at the end of 2025, it has now revised this upwards to 2.6%. In a severe scenario, in which there is a stronger and more persistent energy price shock, the institution led by Christine Lagarde sees inflation standing at 4.4% this year and 4.8% in 2027.
The Bank of Portugal has also significantly revised downwards its growth forecasts for this year, now projecting GDP growth of 1.8%, 0.5 percentage points lower than the 2.3% estimated in December.
