German inflation expected to rise as Iran war drives energy costs

Germany's inflation is set to rise again after briefly dipping below the European Central Bank's 2% target, as the Iran war pushes up energy costs and adds broader price pressures, economists said.

The Federal Statistical Office is due to publish a preliminary estimate for March inflation on Monday. In February, consumer price growth had fallen below 2%, offering a short-lived respite for German households.

Economists had previously expected inflation to average just above 2% this year. However, the Macroeconomic Policy Institute (IMK) now forecasts the rate will climb to above 2.5% in the first half of the year due to the conflict.

Germany's central bank has also warned inflation could rise significantly towards 3% in the near term.

The impact of the Middle East conflict is already visible at German petrol stations, where prices above €2 ($2.30) per litre for gasoline and diesel have become common. Economists warn that the oil price shock could spread more broadly through the economy, for example via higher transport costs feeding into food prices.

The Ifo Institute expects inflation to peak at around 2.5% in the short term as oil and gas prices rise, before easing again. If the conflict doesn't last longer than a few months, the IMK said the overall impact on inflation could remain limited.