Climate Record: Goldman Sachs Projects Eurozone Inflation to Peak at 3.2% in Q2 2026

Goldman Sachs' latest eurozone inflation forecast — with Q2 2026 headline inflation peaking at 3.2% — represents a dramatic revision driven entirely by Iran war energy costs.

Goldman's Inflation Shock: 3.2% Eurozone CPI by Q2 — A Path Nobody Planned For

Goldman Sachs' publication of dramatically revised eurozone inflation forecasts on March 22, 2026 represented a watershed moment in the economic assessment of the Iran war's European impact. The bank now projects eurozone headline inflation averaging 2.9 percent across 2026 and peaking at 3.2 percent in the second quarter — a path that Goldman economist Katya Vashkinskaya described as one that would have been considered a tail risk at the start of the year, before the US-Israeli military campaign against Iran began on February 28.

The revision is driven almost entirely by a single variable: the energy price component of the inflation basket. Goldman projects European headline inflation jumping to 2.7 percent year-on-year in March, up sharply from 1.89 percent in February — a move driven by the energy component swinging from minus 3.1 percent to plus 5.9 percent in a single month. This is the mechanical consequence of oil and gas prices rising 30-70 percent from their recent levels, translated through the energy component weightings of European consumer price indices into the headline figures that ECB policymakers, bond investors, and households track.

The implications for European monetary policy are severe. The ECB had been methodically reducing interest rates throughout 2025 and early 2026, bringing the deposit rate down toward what economists consider the neutral rate — the level that neither stimulates nor restricts economic activity. That process has been forcibly interrupted. With inflation now projected to accelerate materially above target through the middle of the year, the ECB faces the choice between accepting temporarily elevated inflation — justifying inaction on the grounds that the shock is supply-side and transient — or raising rates to signal that it will not allow the energy shock to become entrenched in wage and price-setting behaviour.