Eurozone Inflation Rises to 4% as Energy Costs Surge - Politics and regulation

Eurostat’s preliminary estimate puts eurozone inflation at 4% in October, up from 3.8% in September. Energy prices were the main driver, while Germany’s rate was held down by a fuel tax rebate. A December ECB rate rise is considered likely.

Inflation in the eurozone climbed to 4% in October, according to a preliminary estimate released Wednesday by Eurostat. The rate was 3.8% in September and 3.2% in August, and has remained above the European Central Bank’s 2% target for more than six months.

Energy was the main source of price increases. Heating oil and fuel contributed to a 20.8% annual rise in energy prices. Food prices increased by a more modest 0.5%, although vegetables became considerably more expensive. The report attributed this partly to poor harvests after summer drought and partly to higher costs for greenhouse energy and transporting imports. Dairy products, by contrast, became cheaper amid an oversupply of milk.

Services prices rose 3.3% year on year, while core inflation—which excludes energy and food—held at 2.5%.

Inflation trends varied across eurozone countries. Germany’s rate, measured by the Harmonised Index of Consumer Prices, was 2.8% in October. The fuel tax rebate introduced on 1 October helped bring it down; Berenberg chief economist Holger Schmieding estimates that the measure reduced the rate by 0.3 percentage points.

France’s inflation rate rose from 3.4% to 3.8%, its highest level since late 2023. Spain’s eased slightly, from 5% to 4.9%, while Austria’s fell from 3.6% to 3.5%. Lithuania recorded the eurozone’s highest rate, at 6.1%, followed by Bulgaria at 6%. Malta had the lowest rate, at 2.3%, with fuel prices fixed for an extended period and supported by the state budget.

Economists expect inflation to remain near 4% in the short term, though some anticipate a moderation during 2027. Statistical base effects could gradually remove the impact of the energy price surge associated with the Iran war from annual inflation figures. The outlook will also depend on the conflict, oil prices and whether higher energy costs feed into wages and companies’ selling prices.

The ECB is due to make its next interest-rate decision on 17 December. It held rates steady in October, but Bundesbank President Joachim Nagel said a December increase was “very likely” necessary, pointing to a deteriorating inflation outlook. The article reports that ECB President Christine Lagarde had indicated a 0.25 percentage-point increase in the deposit rate to 2.75% was the expected direction, provided no unexpected developments occur.

Sources: FAZ.