via notayesmanseconomics:
One of the features of the conflict in the Middle East so far has been the way that measuring the incoming inflation wave has been made more difficult by two factors. Firstly the extreme volatility in oil prices driven by a cycle of extreme threats followed by talk of negotiations. For example there were quite a few reports over the weekend of the oil price being US $127 per barrel whereas this morning the two main futures contracts are US $97-98 and it is only Tuesday. Also in an echo of what we had seen in the markets for Gold and Silver we have seen a big divergence between the paper or futures markets and the physical one or what is called dated Brent. The futures contract will be pulled to the cash price on expiry for settlement but at other times we are seeing a wide divergence which leads to one of my first ever topics on here which is what is the price and therefore how do we measure inflation?
For those interested in the structure @CRUDEOIL231 has produced an explanation in broad terms.
A massive divergence between Dated Brent (physic) and ICE Brent futures (paper) typically indicates acute near-term physical tightness relative to forward expectations. If Dated Brent remains at $120-130/bbl leading into the expiration of the front-month ICE Brent futures contract (currently around $100/bbl), the futures contract must converge toward the physical price.
This morning Europe has given us a hint of what is as Kate Bush would say running up that hill so let us investigate.
Germany
There was quite a change this morning at the beginning of the chain.
WIESBADEN – Wholesale selling prices in March 2026 were 4.1% higher than in March 2025. From December 2025 to February 2026, the year-on-year change rate was +1.2%. The last time a higher price increase compared to the previous year was recorded was in February 2023 (+9.5% compared to February 2022).
So the annual rate for wholesale prices was nearly 3% higher than before and it was driven by this.
The main reason for the overall increase in wholesale prices compared to the same month of the previous year in March 2026 was the rise in the price of petroleum products. Prices here were on average 17.8% higher than in March 2025. Compared to the previous month of February 2026, they also rose significantly (+18.8%).
These types of indices are invariably dominated by the currency and the price of oil. But we see that there was also a lot of action on the under card.
Also significant for the year-on-year development was the price increase in the wholesale trade of non-ferrous ores, metals, and semi-finished metal products (+48.4% compared to March 2025).
That makes me think of the price of Dr.Copper which is up some 50% or so over the past year with the futures contract popping over US $6 this morning so the pressure remains. The overall there here reminds me of what we were told by the S&P Global PMI business survey earlier this month.
Manufacturing companies in the euro area reported a considerable rise in their input prices during March. The rate of input cost inflation accelerated sharply on the month to reach its highest since October 2022. The price of goods leaving the factory gate were subsequently raised more aggressively, with the pace of increase at just over a three year high.
For those wondering about food inflation? The picture was mixed.
In addition, wholesale prices for sugar, confectionery, and baked goods rose by 6.1%, and for tobacco products by 5.9%, compared to the same month of the previous year.
In contrast, prices in the wholesale trade of coffee, tea, cocoa and spices were lower than in March 2025 (-8.9% compared to March 2025), as were prices in the wholesale trade of milk, dairy products, eggs, edible oils and edible fats (-8.3% compared to March 2025).
Spain
We got confirmation of the flash inflation number for March this morning.
The Harmonised Index of Consumer Prices (HICP) placed its annual rate at 3.4%, nine tenths above the previous month.
So to use the phrase frequently employed by ECB President Christine Lagarde we see that Spain is no longer in her “good place”. In terms of the breakdown we only get it for their own national CPI measure but we can get a general idea from it.
Transportation , with a rate of 4.5%, was primarily due to increased fuel and lubricant prices for personal vehicles . This group contributed 0.691 to the overall CPI.
Clothing and footwear , with a monthly rate of 6.5%, reflected the price behavior of the new spring-summer season. This group contributed 0.201 to the overall CPI.
Restaurants and accommodation services saw a 0.8% increase due to higher prices in restaurants, cafes, fast food establishments, and similar businesses, as well as in accommodation services . This group contributed 0.145% to the overall CPI.
Is he latter section Spain getting ready for the holiday season? Anyway the main driver here is higher fuel prices as you might expect. Plus the annual comparison for the housing component flashes a warning about energy as well.
Housing prices saw a year-on-year increase of 3.7%, almost two percentage points higher than the previous month. This was due to electricity prices , which decreased less than in March 2025, and liquid fuel prices , which rose compared to a decrease the previous year.
The monthly change for the Euro area measure showed quite a surge.
The monthly variation of the HICP was 1.7%.
The ECB
It finds itself in trouble on several fronts. The basic issue is the rise in prices and hence inflation. But there is also an issue for its Ivory Tower highlighted by @chigrl.
20% of global oil is trapped behind a mined strait, gasoline/diesel/jet fuel prices are up double digits, and the Fed’s preferred inflation metric excludes both food and energy. Tell me again how Core PCE reflects the real economy.
I have been making the point about core inflation for many years but for some it is an effective Jedi Mind Trick.
Plus another problem for the ECB has been its support of a failed energy policy as highlighted last week by its biggest enthusiast for such policies Frank Elderson.
Europe remains among the advanced economies most reliant on imported fossil fuels.
Surely though they have changed things since the 2022 energy crisis? Apparently not.
Recent geopolitical tensions have highlighted how little this dependence has changed, with the conflict in the Middle East triggering another surge in European energy costs.
It does not matter how often the policies Fran supports fail tractor production is always rising for him or something like that.
The most effective way to do that is by cutting reliance on imported fossil fuels and accelerating an orderly shift to home‑grown clean energy.
If you ignore the costs it is free.
Once the infrastructure is in place, the energy itself is virtually free.
In fact if you read between the lines it suddenly morphs into being extremely expensive.
It requires large upfront investments, deep and well‑functioning capital markets, and a predictable policy environment. Progress on the savings and investments union will be essential to mobilise capital at the necessary scale.
Comment
Last time around ECB President Christine Lagarde assured us that the inflation surge was a “hump” and that they decline. She also said that interest-rates would not rise. So even someone as immune to embarrassment as her is unlikely to try that again.But on a deeper level how much things go wrong the answer is always more Europe as the ECB social media feed has just demonstrated.
We need a true Single Market for a more competitive EU banking sector.
Also if you are worried about trouble ahead then this from earlier this month should make you afraid.
“It marks the end of an era,” said Carsten Brzeski, global head of macro at ING. “The state of emergency in European monetary policy is coming to a close,” he added, saying that the ECB managed to engineer the exit from its quantitative easing smoothly. ( Financial Times)
Perhaps he failed to check present bond yields or that it is not yet over. But declaring a state of emergency as over is in Yes Prime Minister terms brave and perhaps courageous.