AFP, Frankfurt

The European Central Bank is expected to hold interest rates steady again this week as it waits to see if the inflation spike triggered by the Middle East war will prove temporary or begin to weigh on growth.

Markets ramped up their bets on a rate hike after the US-Israeli war on Iran sparked a global energy shock, which is already pushing up eurozone consumer prices.

Inflation in the 21-nation single currency area jumped to 2.6 percent in March, above the ECB’s two-percent target, and the bank has warned it could surge far higher in a worst-case scenario.

ING economist Carsten Brzeski said the ECB’s mantra before the war -- that it was in a “good place” on rates -- was “no more”.

“The bank is back in crisis mode, shifting its focus from longer-term projections to actual developments and back to a ‘driving at sight’ approach,” he said.