Inflation jumps across euro zone, raising pressure on ECB to hike
TLT•Inflation accelerated in France, Italy and Spain in September, with energy prices surprising on the upside. Economists expect euro zone inflation to rise to 3.6% from 3.2%, while markets expect four more ECB rate hikes over the next year.
1. National inflation rises
France’s harmonized inflation rate rose to 3.4% year over year in September from 2.6% in August, while Italy’s climbed to 4.1% from 3.2%. Spain’s rate increased to 5.0% from 4.6%. Inflation also rose sharply in five German states, pointing to a possible increase in the national figure due later Wednesday.
2. Energy drives expectations
Energy inflation surprised on the upside in countries that have reported, while food inflation also came in somewhat higher than expected. Economists polled expect euro zone inflation to reach 3.6% in September, up from 3.2% in August. Economists say the inflation peak could be closer to 4% than the ECB’s baseline forecast.
3. Rate outlook and risks
Markets expect four additional ECB rate hikes over the next year, following two increases this summer. The ECB’s adverse scenario sees inflation at 4.0% in the fourth quarter of this year and the first three months of 2027. ECB President Christine Lagarde said a moderate policy response remains appropriate because this year’s inflation surge has not yet produced dangerous second-round effects; an economist warned core inflation could rise into early 2027.
