Germany's preliminary consumer price index rose to 2.7% year-on-year in March, up sharply from 1.9% in February, preliminary data from statistics office Destatis showed Monday. The increase reflected a rebound in energy prices, which climbed 7.2% after falling 1.9% the prior month.

Food prices edged up 0.9% in March, down slightly from 1.1% in February. Core inflation, excluding food and energy, held steady at 2.5%. On a monthly basis, prices increased 1.1%. As previously reported, state-level data had already pointed to this national acceleration, with North Rhine-Westphalia at 2.7%, Bavaria 2.8%, Baden-Wuerttemberg 2.5% and Lower Saxony 2.6%.

The surge stems from higher energy costs linked to the U.S.-Israeli conflict in Iran, which has disrupted oil flows and pushed crude above $110 per barrel. Diesel prices in Belgium hit a record €2.333 per liter starting Tuesday, up 17 cents, contributing to Belgian inflation rising to 1.7% from 1.5%.

Greek central bank governor Yannis Stournaras, an ECB policymaker, urged swift action if inflation expectations show signs of drifting or second-round effects emerge. "The ECB will have to respond quickly to help ensure that inflationary pressures do not become entrenched," he said at a Bucharest conference.

Markets now price in three ECB rate hikes this year, potentially starting in April or June. ECB board member Isabel Schnabel cautioned against hasty moves but noted the bank's improved tools to combat persistent inflation.

Eurozone economic confidence fell to its lowest since September, with consumer inflation expectations at a high not seen since mid-2022. Flash eurozone CPI data due Tuesday could confirm a rise to 2.7%.

Goldman Sachs warned of stagflation risks, noting rising asset correlations and recommending defensive shifts toward cash, TIPS, infrastructure and gold amid the energy shock.

Ifo's price expectations index for German firms jumped to 25.3 from 20.3, signaling broader price pressures ahead.