In brief

• Euro area inflation rose to 4.0% in October from 3.8% in September, the highest since September 2023.
• Energy prices were the main driver, up 20.8% year on year.
• The European Central Bank may raise interest rates again in December.

Inflation at a three-year high

Inflation in the euro area accelerated to 4.0% in October from 3.8% in September, according to a flash estimate published on Wednesday by Eurostat, the EU statistics office (Inflacja w strefie euro przyspiesza. EBC może podnieść stopy procentowe w grudniu – Puls Biznesu) (La inflación de la zona euro repunta al 4% en octubre por el encarecimiento de la energía – EL PAÍS) (Inflace v eurozóně je nejvyšší za poslední tři roky – Novinky.cz) (Inflation im Euroraum steigt auf 4,0 Prozent – tagesschau.de). It is the highest reading since September 2023, when food prices were pushing the rate up sharply. Economists polled by Reuters had expected 4.0%, matching the official figure.

Energy leads the increase

Energy was the largest contributor. Prices for energy goods and services rose 20.8% from a year earlier, up from 18.9% in September (Hohe Energiepreise: Inflation im Euroraum steigt auf vier Prozent – DER SPIEGEL). Services inflation edged up to 3.3%, while food, alcohol and tobacco prices climbed 1.6%, up from 1.3% in the previous month. Non-energy industrial goods rose 1.2%.

Pressure on the central bank

The European Central Bank had recently paused its rate increases, but the inflation data has raised the prospect of another move. Market commentary points to a possible hike in December, which would be the third this year (Euro zone inflation hits 4% for first time in three years as interest rate hike looms – CNBC). The ECB has warned that the oil price shock linked to the conflict involving Iran could keep inflation elevated.

Outlook

Some analysts expect inflation rates around four percent to persist in the coming months, with no clear easing before spring 2027. Energy costs will remain the key variable. The next official estimate is due from Eurostat at the end of November.

For readers: the headline rate is a flash estimate and may be revised.