Euro zone inflation climbs to three-year high, putting pressure on ECB

Yesterday 20:00

By: Azzat Manal

Euro zone inflation climbs to three-year high, putting pressure on ECB

Inflation in the euro zone accelerated sharply in September, reaching its highest level in three years as rising energy costs added to pressure on consumer prices and complicated the European Central Bank’s monetary policy outlook.

Eurostat’s flash estimate showed annual inflation rising to 3.8% in September from 3.2% in August. The figure was above the 3.7% median expectation in a market survey and marked the highest inflation rate since September 2023.

Energy was the main driver of the increase. Energy prices were estimated to have risen 18.8% year on year in September, compared with 14.3% in August. Services inflation also accelerated to 3.2%, while food, alcohol and tobacco prices increased by 1.4%. Inflation for non-energy industrial goods eased slightly to 1.1%.

Underlying inflation also remained above the European Central Bank’s 2% target. The measure excluding energy, food, alcohol and tobacco stood at 2.5% in September, unchanged from August, suggesting that price pressures extended beyond the energy component.

The latest figures come after the ECB raised its three key interest rates by 25 basis points in September. The central bank said the conflict in the Middle East was continuing to generate inflationary pressure and projected headline inflation to average 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028.

The ECB has emphasized that its future decisions will depend on incoming economic data, the inflation outlook and the persistence of underlying price pressures. It has also highlighted the risk that higher energy costs could remain elevated for an extended period and feed into other parts of the economy.

The September inflation surge therefore adds another layer of uncertainty for policymakers. Higher energy costs can push headline inflation upward while simultaneously weighing on household purchasing power and business costs, creating a difficult balance for monetary authorities.

For consumers and businesses across the euro area, the renewed increase in prices marks a reversal from the period when inflation had been moving closer to the ECB’s target. The latest data indicate that energy-market developments remain a major factor in determining the region’s short-term inflation trajectory.