Eurozone inflation spikes to 3.8% in September, driven by soaring energy costs

Euro zone annual inflation jumped to 3.8% in September from 3.2% in August, above the 3.6% consensus, according to Eurostat's flash estimate. It is the highest reading since September 2023, and energy was the main driver: energy inflation reached 18.8%, its highest since January 2023, as the Middle East conflict kept pushing prices up. Eurostat put August energy inflation at 14.3%.

The details were firmer than an energy story alone. Core inflation, which excludes energy, food, alcohol and tobacco, rose to 2.5% from 2.4%, matching expectations, and Eurostat showed services inflation rising to 3.2% from 3.0%. Euronews estimates that energy, at roughly 9% of the basket, added about 1.7 percentage points to the 3.8% headline.

The print keeps pressure on the ECB to hike. The central bank already raised its three key rates by 25 basis points on 10 September, and prediction markets assign a 91% chance of another hike at the end of the month, according to Euronews. Not everyone expects a move that soon: Capital Economics' Jack Allen-Reynolds told Reuters the ECB is most likely to wait until December. Validus Risk Management's Harry Woolman called the jump "more than an energy story" and said a central bank mindful of 2022 will not want to wait for second-round effects.

The next ECB meeting on Oct. 29 is the key date, with Eurostat's full September data due on 16 October. Whether services and core keep firming could matter more for the policy path than the energy component, which may ease if fuel and gas prices stabilize.