Eurozone retail sales declined 0.2% in February, signaling consumer weakness before Middle East tensions drove energy prices higher. The European Union's statistics agency reported the monthly drop, worse than the 0.1% decline economists had predicted. Food, drink and tobacco sales fell 0.5%, while automotive fuel purchases rose 0.7% as consumers anticipated March price increases.

Despite the monthly decline, retail volumes remained 1.7% higher than February 2025. The Strait of Hormuz closure in March triggered energy price surges that pushed eurozone annual inflation to 2.5% from 1.9% in February. This inflationary pressure has led investors to expect at least two European Central Bank rate hikes this year, according to LSEG data.

The February sales weakness suggests consumers were already cautious before the Iran conflict escalated energy costs. With inflation accelerating and rate hike expectations rising, eurozone retailers face mounting pressure. The combination of higher prices and potential borrowing costs could further constrain consumer spending in the months ahead.