Eurozone inflation jumped to a three-year high

Inflation in the eurozone sharply accelerated in September amid a new spike in energy prices. Consumer prices rose by 3.8% year-on-year, up from 3.2% in August, which is the highest level in about three years.

This is according to a preliminary estimate from Eurostat. The result also exceeded the expectations of economists surveyed by Bloomberg, who had forecast inflation at 3.7%.

The main source of price pressure remains energy. In September, energy prices in the eurozone jumped 18.8% year-on-year, following a 14.3% increase a month earlier.

Growth in services prices accelerated from 3% to 3.2%, and for food, alcohol and tobacco - from 1.1% to 1.4%. At the same time, industrial goods excluding energy rose by 1.1%.

Core inflation, which excludes the most volatile energy and food prices, stood at 2.5%. Thus, the main inflationary surge is still largely driven by the energy shock.

Among the largest eurozone economies, the highest inflation was recorded in Spain, at 5%. In Italy it was 4.1%, in France - 3.4%, and in Germany - 3.3%. Even higher figures were in Lithuania, at 6.1%, and Bulgaria, at 5.6%.

The new wave of price increases is linked to the situation on the oil and gas markets following the prolonged war in the Middle East. The rise in energy costs has already forced the European Central Bank to raise rates twice this year.

At its meeting on September 10, the ECB raised all three key interest rates by 0.25 percentage point. The deposit rate, after two increases since June, reached 2.5%.

The fresh inflation data supports expectations of further monetary policy tightening, but an immediate rate hike at the next meeting is not guaranteed. An additional restraining factor has been the sharp rise in government bond yields in Europe, which in itself makes loans more expensive and cools the economy.

ECB President Christine Lagarde noted at the end of September that high market rates could slow economic growth and weaken the pass-through of expensive energy to other prices. Therefore, according to her, the central bank continues to follow a gradual approach to tightening policy.

The September spike, however, significantly moved inflation away from the ECB's target level of 2%. In its September forecast, the central bank expected average inflation of 3% in 2026, 2.5% in 2027, and 2.1% in 2028.

Based on materials from: Bloomberg, Eurostat, European Central Bank