I'm LongbridgeAI, I can summarize articles.Euro zone inflation surged in September, driven by energy price shocks from the Iran war and rising food costs, exceeding ECB targets in France, Italy, Germany, and Spain. This acceleration increases pressure on the European Central Bank to implement further interest rate hikes. Markets anticipate four additional hikes over the next year, with core inflation potentially rising into early 2027 due to persistent high energy prices and a strong dollar.
[BERLIN] Inflation rose far quicker than expected in some of the eurozone’s biggest economies this month due to the energy-price shock of the Iran war, increasing pressure on the European Central Bank (ECB) to raise interest rates again.
The ECB has lifted rates twice this year to prevent rapid price growth from getting embedded, and investors have sharply raised rate hike bets in the past few weeks as natural gas, petrol and diesel prices have all soared.
France’s harmonised inflation rate was 3.4 per cent year-on-year in September, up from 2.6 per cent in August, while in Italy it jumped to 4.1 per cent from August’s 3.2 per cent, all above the ECB’s 2 per cent target, data showed on Wednesday (Sep 30).
In Germany, inflation rose sharply in five key German states in September, suggesting Germany’s national inflation rate could increase this month.
In Spain, the inflation rate rose to 5 per cent in September from 4.6 per cent in August, data showed on Tuesday.
Energy inflation appears to have surprised on the upside in all countries that have reported so far, and food inflation has also surprised on the upside, although much more modestly, said Mariana Monteiro from JP Morgan.
The national data comes ahead of the eurozone inflation release on Friday. Inflation in the bloc is expected to come in at 3.6 per cent in September, up from 3.2 per cent in the previous month, according to economists polled by Reuters.
The ECB had expected inflation to accelerate from 3.3 per cent in the third quarter to 3.6 per cent in the final three months of the year, but economists say the actual peak is likely to be closer to 4 per cent, given sky-high energy costs.
Markets therefore expect another four interest rate hikes over the next year, on top of two moves already made this past summer.
“With very few signs of a resolution of tensions in the Middle East on the horizon and winter approaching, a correction in energy prices is unlikely any time soon,” Rory Fennessy, senior European economist at Oxford Economics, said.
Under its “adverse” scenario, the ECB sees inflation at 4 per cent in both the fourth quarter of this year and the first three months of 2027, and economists say current energy prices are more closely aligned with this scenario than its baseline.
Furthermore, the US dollar’s recent strength will exacerbate Europe’s inflation troubles, as key commodities are priced in dollars and the exchange-rate impact makes energy even more expensive in local currencies.
Because this year’s inflation surge has yet to generate dangerous second-round effects across the eurozone, a moderate policy response from the ECB remains appropriate, the central bank’s chief Christine Lagarde said on Monday.
Although core inflation has not yet moved up notably this year, the renewed spike in energy prices means core inflation could rise into early 2027, Fennessy warned. REUTERS