Rising price pressures and weaker growth prospects have reinforced concerns about inflation across the eurozone.

Consumer prices in France rose 2.8% year-on-year in May, the highest level since February 2024, statistics office INSEE confirmed on Friday, validating the preliminary reading published at the end of last month. The EU-harmonised inflation rate in the bloc’s second-biggest economy continued accelerating in May, after a 2.5% increase in April.

The story behind the headline number is unambiguous. The rise in inflation was driven mostly by a 16.8% year-on-year increase in energy prices, such as gas, while services inflation edged up and manufactured goods prices kept falling. The May rise was led by a near 17% year-on-year rise in energy prices, mainly natural gas, said the statistics office.

Consumer prices rose 0.1% from April, pushing the 12-month inflation rate to 2.8%. The harmonised rate, adjusted for comparison with other euro zone countries, came in slightly short of a Reuters poll of 19 analysts, which had a median forecast of 2.9% and a range of 2.3% to 3.1%. Even coming in marginally below expectations, the trajectory is clear: France’s inflation has been climbing steadily for months, and the underlying driver is majorly the energy shock from the Iran war.

Well, the spike is not random. France’s inflation rate jumped to 1.7% in March, its highest since January 2025, as energy prices rose for the first time in over a year following the outbreak of the conflict. By April that figure had climbed to 2.5%, and now May has pushed it further to 2.8% – a clear, sustained upward trend over three consecutive months, each one driven primarily by the same energy component.

The timing of Friday’s confirmation is notable. It comes just one day after the European Central Bank delivered its first interest rate hike since 2023.

The European Central Bank announced a quarter-point rate hike on Thursday, bringing its key interest rate to 2.25%, as the Iran war continues to push inflation off target. The Governing Council said the decision had been made to ward off inflationary pressures generated by the US-Iran war, stating: “The war in the Middle East is generating inflation pressures, and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area.”

The ECB also revised its inflation forecasts upward, now expecting headline inflation to reach 3.0% in 2026, up from a previous estimate of 2.6%, and 2.3% in 2027, up from 2.0%. Core inflation forecasts were also raised to 2.5% for both 2026 and 2027. Growth projections moved in the opposite direction. The ECB now expects euro zone growth to average just 0.8% in 2026, 1.2% in 2027, and 1.5% in 2028, with officials saying the growth outlook had been trimmed to reflect “a more pronounced impact of the war on commodity markets, real incomes and confidence.”

The hike arrives at a difficult moment for the eurozone economy. The bloc’s economy contracted by 0.2% in the first quarter of 2026 from the previous three months, leading economists to call the period a case of “stagflation” – a mixture of weak growth, high inflation and low confidence.

Euro area inflation climbed to 3.2% in May, up from 2.2% in April, and the core inflation rate (excluding food and energy) also ticked up from 2.2% in April to 2.5% in May, further dispelling any notion that price pressures are limited to energy. France’s 2.8% reading is in line with that overall context, but slightly below the average for the bloc.

ECB board member Isabel Schnabel had pushed for action regardless of how Iran peace talks progressed. She argued the ECB should raise rates in June regardless of whether ongoing Iran peace talks produce a deal, citing the conflict’s duration and the degree to which high energy prices were spilling into the broader economy. She warned that “the risk of de-anchoring inflation expectations is rising” and that the bank could no longer “look through this shock,” going as far as predicting inflation could rise to 4% before the year is out.

ECB President Christine Lagarde was careful not to commit to a fixed path forward. “The outlook remains uncertain, with upside risks for inflation, and downside risks for economic growth. We are not pre-committing to a particular rate path,” she said.

For France, and for the eurozone more broadly, the next few CPI prints will be closely watched for any sign that the energy-driven inflation is beginning to broaden into core categories like services, wages, and manufactured goods. If that happens, the ECB’s June hike may prove to be the first of several, rather than a one-off response to an external shock.