Inflation jumps across euro zone, raising pressure on ECB to hike
TLT•Inflation accelerated in France, Italy, Germany and Spain in September, with rates ranging from 3.3% in Germany to 5.0% in Spain. Economists polled expected euro zone inflation to rise to 3.6%, while markets expected four more ECB rate hikes over the next year.
1. National inflation accelerates
September inflation rose to 3.4% in France from 2.6% in August, 4.1% in Italy from 3.2%, 3.3% in Germany from 2.9%, and 5.0% in Spain from 4.6%. Germany’s core inflation, excluding food and energy, remained at 2.4% for a third consecutive month. Energy inflation surprised to the upside in all reporting countries, with food inflation also higher, though more modestly, J.P. Morgan economist Mariana Monteiro said.
2. Rate expectations rise
Economists polled expected euro zone inflation to reach 3.6% in September, up from 3.2% in August. The ECB had expected inflation to reach 3.6% in the final quarter of the year, but economists said the peak was likely to be closer to 4% given energy costs. Markets expected four more rate hikes over the next year, following two increases during the summer. The ECB’s adverse scenario sees inflation at 4.0% in the fourth quarter and the first three months of 2027; economist Rory Fennessy warned core inflation could rise into early 2027.
