BNY’s Bob Savage flags unpleasant preliminary March inflation in Europe, driven by energy and refined products, with diesel prices above 2022 levels. Governments are capping fuel costs via tax and margin measures, raising fiscal credibility questions. Savage expects at most one more hike from the ECB, Bank of England and Riksbank, while Norges Bank has already signalled one hike.

Energy-driven CPI complicates policy outlook

"The first round of preliminary March inflation numbers has arrived and the readings are unpleasant. Base effects clearly matter here, but across Europe central banks should be braced for 1% m/m gains in prices, driven by energy cost changes."

"Although crude prices appear to have found their peaks even in extreme escalatory scenarios, European governments have shifted attention to refined products – where outright supply shortages are the more pressing concern."

"European diesel prices have already surpassed $200/bbl – above 2022 levels – while EU diesel and jet fuel stocks at the end of 2025 averaged less than two months of supply."

"More inflation numbers for March will be released outside of the Eurozone over the coming weeks, giving central banks additional information to calibrate their response. For now, all upcoming decisions in the region are live but most are likely to remain non-committal due to the uncertainties surrounding prices and supplies."

"We continue to expect at most one hike from the ECB, Bank of England and Riksbank, while Norges Bank has already committed to one hike."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)