Euro zone inflation shot up to a three-year high of 3.8 per cent in September, after the escalating conflict in the Middle East triggered a resurgence in oil and gas prices.
The reading published by Eurostat on Friday was up from 3.2 per cent in August and higher than economists’ forecast of 3.6 per cent in a Reuters poll.
Inflation rose at a faster pace than expected in all four of the euro zone’s largest economies, with Spain reporting an annual rate of 5 per cent.
The increase was driven by fuel prices. Energy inflation jumped to 18.8 per cent from 14.3 per cent in August, reaching the highest level since January 2023 during the energy price crisis triggered by Russia’s full-scale invasion of Ukraine the previous year.
“Over the coming months, the currently high oil price could push headline inflation towards 4 per cent,” warned Ulrike Kastens, economist at asset manager DWS.
But she added that a “similarly sharp rise” in core inflation, which excludes volatile food and energy prices, was not on the cards as “wage growth is likely to remain subdued”.
Rising inflation and concerns over the sustainability of public finances in more indebted countries, such as France, have triggered a surge in euro zone borrowing costs.
That has pushed yields of French 10-year government bonds up as much as 0.1 percentage points to 4.96 per cent on Thursday, their highest level since 2002. They have since come back slightly to 4.92 per cent.
September marked the seventh month in a row that inflation in the 21-country bloc was above the European Central Bank’s (ECB) medium-term 2 per cent target.
Annual core inflation rose 0.1 percentage points in September to 2.5 per cent.
The closely watched figure for services inflation rose to 3.2 per cent from 3 per cent in August. The figure, a gauge of domestic price pressures, has remained well above the ECB’s target for more than three years.
The ECB was the first central bank in the G7 to respond to the Middle East energy shock, increasing borrowing costs by a quarter point in June and again in September.
Traders are betting that policymakers will respond by raising interest rates by another quarter point to 2.75 per cent by the end of the year.
They are attributing a roughly 20 per cent chance to a quarter-point rate rise being announced at the next ECB meeting later this month and about an 80 per cent probability that the move comes at December’s meeting, according to levels implied by swaps contracts.
Top ECB official Isabel Schnabel said this week that rate-setters must act pre-emptively to stop high energy prices from feeding into broader prices and wages.
Lee Hardman, senior currency analyst at MUFG, said there was “limited evidence” so far of high energy prices spilling into the wider economy, noting that this “and tightening financial conditions should keep the ECB on hold until December”.
Headline inflation “is clearly hot” but core inflation, at 2.5 per cent, “indicates again no evidence of second-round effects”, said Francesco Pesole, FX strategist at ING, although he added that the jump in the headline number obviously “isn’t great news given all that’s going on in France”.
The euro was stable following the data, edging higher against the US dollar at $1.125. – Copyright The Financial Times Limited 2026