Euro zone inflation climbed to 4.0% in October, its highest level in three years, up from 3.8% the previous month, according to figures released by Eurostat. The result matched the forecast in a Reuters poll of economists. Inflation has moved further above the European Central Bank’s 2% target as energy costs rise.
Core inflation, which excludes food and energy, held at 2.5%, also in line with expectations. Services inflation edged up to 3.3% from 3.2%, while prices for industrial goods increased 1.2%, compared with 1.1% in September. Non-processed food prices were 4.6% higher than a year earlier.
The energy-driven rise is expected to continue putting pressure on prices in the coming months. Higher costs for fuels and natural gas can feed into the prices of other goods and services, while low gas storage levels add to the risk of higher heating bills. Economists expect some of those effects to become more visible in the coming months, including in January, when some prices are typically reset.
The European Central Bank left interest rates unchanged last week, after raising them twice this year. Several policymakers, including the heads of Germany’s and Italy’s central banks, have signalled that another increase in December is likely. Markets are pricing in between two and three increases to the ECB’s 2.5% deposit rate over the next year, although expectations have shifted alongside oil prices.
The ECB expects inflation to remain above 4% for much of the first half of 2027 before falling towards the low twos as elevated readings from the previous year drop out of the comparison. The latest data suggest that higher energy prices have not yet triggered broader, persistent price increases, but the indirect effects remain a concern for policymakers.
Sources: Investing.com News.