Euro-area inflation hits three-year high of 4.0% in October on energy prices

Energy drives the rise to a three-year high

Euro-area consumer prices rose 4.0% in October from a year earlier, according to a flash estimate Eurostat published on Wednesday, 4 November. That is up from 3.8% in September and the highest rate since September 2023, when inflation last stood above four percent. The estimate covers the 21 countries that use the euro. Energy was the main driver, with prices up 20.8% on the year after 18.9% in September. Services rose 3.3% (3.2% in September), food, alcohol and tobacco 1.6% (1.3%), and non-energy industrial goods 1.2% (1.1%). The monthly change was +0.4%, and the outcome matched economists' forecasts.

Energy20.8%

Services3.3%

Food, alcohol and tobacco1.6%

Non-energy industrial goods1.2%

Energy

20.8 %

Services

3.3 %

Food, alcohol and tobacco

1.6 %

Non-energy industrial goods

1.2 %

Data from the article text

Gaps between member states

Inflation rates varied widely across the bloc. Lithuania recorded the highest rate at 6.1%, followed by Bulgaria at 6.0%, while Greece and Italy both reported 5.6%. Germany's rate fell to 2.8% in October, and a fuel discount (Tankrabatt) was the decisive factor, keeping energy costs there from rising as steeply as in the rest of the euro area. Only Malta recorded a lower rate, at 2.3%. Economists had raised their forecasts ahead of the release, pointing to price pressure in individual economies such as Italy.

Lithuania6.1%

Bulgaria6%

Greece5.6%

Italy5.6%

Germany2.8%

Malta2.3%

Lithuania

6.1 %

Bulgaria

6 %

Greece

5.6 %

Italy

5.6 %

Germany

2.8 %

Malta

2.3 %

Data from the article text

Why the ECB may raise rates again

The European Central Bank targets inflation of 2.0%, a level it now sits far above. It raised its benchmark rate in June and again in September, and has since paused, leaving the rate at 2.50%. Christine Lagarde warned in late October that a bigger and longer energy shock would likely push inflation higher and growth lower, and she indicated that policymakers were ready to raise rates by a quarter point in December. Traders have fully priced in a quarter-point rise to 2.75% by February and put roughly a 70% chance on an ECB move in December. Bundesbank president Joachim Nagel said on Tuesday, 3 November, that a rate increase was very likely necessary from his current perspective.

“There is hardly a way around an interest rate increase if the inflation outlook does not improve markedly.”

Austria's central bank governor Martin Kocher said the risks to inflation had clearly increased.

Growth, bond yields and the outlook

Growth has held up better than expected. GDP across the bloc expanded 0.4% in the third quarter, twice the pace economists had forecast. Yields on French 10-year government bonds rose above 5% in October for the first time since 2002 and have since eased slightly. Peder Beck-Friis, an economist at Pimco, said before the release that he expected a rate rise in December, but that the bar for going further looked high without stronger evidence that higher energy prices were feeding into core inflation. Core inflation stabilised at 2.5% in October, as it did in September. KfW economist Stephanie Schoenwald expects the rate to stay at this level in the coming months and to fall only in spring 2027, when prices will be compared with the high energy costs of this year.

“Inflation rates at this level will accompany us in the coming months, given the unresolved Iran conflict.”

Eurostat will publish a second estimate with updated data in mid-November, and the ECB's next decision is due in early December.