Eurozone inflation hits 4% on energy surge, putting a December ECB hike in play

Frankfurt —Euro area annual inflation rose to 4.0 percent in October from 3.8 percent in September, driven by a further jump in energy prices, according to a flash estimate published by Eurostat on Wednesday. It was the first reading at or above 4 percent since September 2023, according to CNBC, and it strengthens the case for the European Central Bank to raise interest rates again at its final policy meeting of the year in December.

Energy prices were 20.8 percent higher than a year earlier, up from 18.9 percent in September, Eurostat said. Services inflation edged up to 3.3 percent from 3.2 percent, and food, alcohol and tobacco rose to 1.6 percent from 1.3 percent. Excluding energy, food, alcohol and tobacco, inflation was unchanged at 2.5 percent. Prices rose 0.4 percent from September.

All 21 euro area economies recorded inflation above the ECB’s 2 percent target. Lithuania had the highest rate at 6.1 percent and Malta the lowest at 2.3 percent. Italy’s rate jumped to 5.6 percent from 4.2 percent, while Germany’s eased to 2.8 percent from 3.3 percent.

The ECB has raised its deposit facility rate twice this year, by 25 basis points each time, taking it to 2.50 percent from 2.00 percent. The moves took effect on June 17 and September 16, according to the central bank’s schedule of key rates, and the rate has not changed since. After the inflation data, markets were pricing a chance of more than 72 percent of a December increase, CNBC reported. On Thursday, the Bank of England raised its key rate by 0.25 percentage point to 4 percent in an 8 to 1 vote, citing inflationary pressure from higher energy prices linked to the conflict in the Middle East.

Isabel Schnabel, a member of the ECB’s Executive Board, said in a speech in Frankfurt on Thursday that a sufficiently large and persistent adverse supply shock can push projected inflation above target and require a timely policy response. Presenting what she called personal reflections as she reaches the end of her time at the central bank, she said the response to a shock should depend on its implications for the projected inflation path rather than on its nature, and that a relative price adjustment can become a broader inflation problem through indirect price effects, wage dynamics and changes in inflation expectations.

“In response to the latest energy shock, consumer inflation expectations over the medium to longer term have increased and gradually moved away from our 2% target.”

She also said the ECB had responded to the expected persistence of inflationary pressures in a timely and forward-looking manner, and that it is now well positioned to address the current inflation challenge.

Separate ECB data published on Wednesday point to modestly firmer negotiated wage growth. The headline wage tracker, which covers collective agreements in nine euro area countries, stands at 2.7 percent for the second half of 2026 and 2.8 percent for the first half of 2027, before declining to 2.4 percent in the third quarter of 2027. The ECB said both figures were revised up slightly, by around 0.1 percentage point on average, from its September release. Excluding one-off payments, the tracker rises from 2.6 percent in 2026 to an average of 2.8 percent over the first three quarters of 2027. The ECB said the forward-looking component should not be interpreted as a forecast, and agreements reaching the third quarter of 2027 cover only 23.3 percent of employees.

Oil prices have dropped back from their late-October level. Brent crude stood at $96.86 a barrel as of 17:00 GMT on Thursday, up 2.4 percent on the day but below the $115.32 recorded on Oct. 28. It remains well above the $63.52 of a year earlier. The euro was at $1.1238 as of 17:10 GMT, and the Stoxx Europe 600 closed down 0.4 percent at 654.87.

Eurostat will publish full October inflation data on Nov. 18 and its flash estimate for November on Dec. 1. The ECB’s next wage tracker update, which will extend the forward-looking horizon to the full year of 2027, will follow its December meeting and is scheduled for Dec. 18.