The European Central Bank has raised its inflation projections and cut some of its growth outlook as the Iran war-induced energy shock reverberates through the 21-nation currency bloc, Reuters reports.

Inflation soared past three per cent last month and is likely to rise further as more expensive energy feeds into consumer prices through a range of items, from car fuel to holiday packages.

This already-visible inflation and fears of spiralling second-round effects are why the ECB has raised interest rates and why financial investors see another two hikes in the coming year.

Higher prices and increased borrowing costs sap consumers’ purchasing power and reduce corporate profit margins, curbing overall growth in an economy that was barely expanding even before the war began.