Eurozone inflation hits 4% — the highest in more than three years

Inflation accelerated exactly to the expected level

Annual inflation in the eurozone stood at 4% in October, up from 3.8% in September, according to Eurostat's flash estimate, as reported by euronews. The figure matched economists' forecasts and became the highest since September 2023, when it stood at 4.3%. In October alone, prices rose 0.4% from the previous month. Prices are now rising twice as fast as the European Central Bank's 2% target.

Energy — nearly half of all price growth

The main driver was once again energy: over the year it became 20.8% more expensive after an 18.9% rise in September, and in October alone it added 1.4%. Since energy accounts for about 9% of the consumer basket, it contributed roughly 1.9 percentage points to the overall 4% figure — almost half. Meanwhile, core inflation, which excludes energy, food, alcohol and tobacco, remained at 2.5%, meaning underlying pressure is not yet intensifying. An indirect sign that the energy shock is beginning to reach shops is the acceleration of inflation for unprocessed foods (fresh fruit, vegetables, meat) from 4% to 4.6%. Services inflation edged up to 3.3% from 3.2%, while non-energy industrial goods rose 1.2% after 1.1%.

Italy — the record-setter, Germany — the main exception

Italy showed the sharpest acceleration: inflation jumped to 5.6% from 4.2%, and prices rose 1.2% in a month — both figures the highest in the eurozone. National data published on Fridayhad already pointed to this surge, linked mainly to regulated energy tariffs. Italy is followed by Belgium (5.2% from 4.5%) and Finland (3.4% from 2.7%); in France inflation rose to 3.8% from 3.4%, and in Bulgaria to 6% from 5.6%. Overall, growth accelerated in 13 of the eurozone's 21 countries, slowed in six and was unchanged in two. The highest level remains in Lithuania at 6.1%, while the lowest inflation is in Malta (2.3%). Germany was the main exception: inflation there fell to 2.8% from 3.3%, and prices dropped 0.1% over the month — due to a cut in the fuel tax in force from 1 October until the end of the year. As the bloc's largest economy, Germany kept the average figure lower than it would have been without this measure.

ECB: rate decision in question at the December meeting

On 29 October the ECB kept the deposit rate at 2.5% after hikes in June and September; Christine Lagarde said the council discussed another increase but unanimously decided to wait. New data strengthen the case for tightening: Nicola Nobile of Oxford Economics said the October figure 'adds to already strong arguments for a rate hike in December', while Pantheon Macroeconomics economists Claus Vistesen and Melanie Debono expect a 25-basis-point increase in December and another in March 2027, forecasting inflation to peak at 4.5% in January. According to prediction markets, the probability of a quarter-point hike at the 16–17 December meeting is around 84%. The decision will be made against the backdrop of an upcoming leadership change: Lagarde announced her resignation for February, nine months before the end of her term.

Markets were moved not by prices but by the US elections

The inflation data themselves had almost no effect on markets: the main factor of the day was the outcome of the US midterm elections, in which the Democrats won control of both chambers of Congress. Investors saw this as a brake on Donald Trump's spending plans, which lowered US Treasury yields and weakened the dollar. By 11:20 Central European Time, the Euro Stoxx 50 was up 1.5%, the DAX up 1.1% and the IBEX 35 up 2.2%; the euro rose 0.6% to $1.1262, and gold gained 3% to $4,046 per ounce. The key question going forward, as euronews notes, is whether price growth will remain in energy bills or start showing up in rents, wages and restaurant prices: that will determine how far the ECB will have to go in raising rates.