Eurozone Inflation Rises to 4%, Driven by Energy Costs — 3rd Update

By Ed Frankl

Inflation in the eurozone reached double the European Central Bank's target in October as energy costs continued to rise, reinforcing expectations that policymakers could hike the key interest rate again after holding it steady last week.

Consumer prices were 4.0% higher in October than the same month last year, accelerating from a 3.8% increase in September, the European Union's statistics office Eurostat said Wednesday. That marked the highest rate of inflation since September 2023 and a fourth straight monthly increase. Economists surveyed last week by The Wall Street Journal expected inflation at 3.9%.

The pickup was again driven by energy prices, as uncertainty persisted about the lack of resolution of the war in the Middle East. Brent crude oil traded well above $100 a barrel in October, while natural-gas prices also surged in the month, ahead of the European winter and with stocks already dwindling to multiyear lows.

Energy prices in October were 21% higher than a year earlier, compared with 19% in September, Eurostat data showed. Headline inflation in the 21-nation currency area had been as low as 1.9% in February, before the first U.S.-Israeli airstrikes on Iran.

"Given the unresolved conflict with Iran, inflation rates of this magnitude are set to persist over the coming months," said Stephanie Schoenwald, economist at Germany's KfW Research.

Despite inflation edging even further above the ECB's 2% target, there are signs that spillover from escalating energy prices into other parts of the economy has been more benign than in the last inflationary surge four years ago.

ECB analysis published this week said food retailers had raised prices less frequently than in 2022 after Russia's full-scale invasion of Ukraine. Food prices increased shortly after the start of this year's energy shock before broadly stabilizing, the report said.

Inflation in Eurostat's grouping of food, alcohol and tobacco rose to 1.6% in October, from 1.3% in the prior month. That was a surprisingly strong reading, with price momentum especially strong for unprocessed food that is more vulnerable to weather shocks such as the heatwaves and swings in energy prices, Oxford Economics economist Nicola Nobile said in a note to clients.

However, the economic impact of hot weather over the European summer has so far been limited, outgoing ECB President Christine Lagarde wrote in blog posted on Wednesday.

Changing food prices are especially important in influencing consumers' expectations surrounding inflation, especially for lower-income households, accounting for around 20% of expenditure in Eurostat's consumption basket. Higher inflation expectations can lead to stronger demands for wage increases.

The ECB chose not to raise interest rates last week despite the enduring pickup in energy prices.

President Lagarde said at the time that although the full effects of the energy shock are still unfolding, underlying inflation was broadly stable and there was little evidence of wages climbing.

Core inflation--which strips out more volatile components including energy and food--held at 2.5%, the same as September, Eurostat said.

The central bank has raised its key rate twice this year to 2.5%, having judged that energy costs were too strong to ignore. Most investors expect policymakers to raise the key rate again in December, with another hike anticipated by June next year.

The ECB's headline wage tracker also published Wednesday suggests slightly higher wage growth in the first nine months of 2027 compared with 2026, though with increases slowing in the second half of next year.

Government efforts to support households are also having an impact on inflation. German consumers were helped by an energy-tax cut in October.

Higher energy inflation in France and Italy offset easing energy price pressures in Germany and Spain, following renewed and extended fuel-duty cuts in the latter two, Pantheon Macroeconomics economists Claus Vistesen and Melanie Debono said in a note.

Put together, Wednesday's data doesn't necessarily strengthen the case for ECB policymakers raising interest rates in December, said Diego Iscaro, economist at S&P Global Market Intelligence.

But should commodity prices remain at current levels and business surveys continue to point to strengthening in underlying inflation, a quarter-point hike then is still likely, he said.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

November 04, 2026 07:34 ET (12:34 GMT)