Data released on Wednesday showed harmonised inflation in France accelerating to 3.4% year on year in September, from 2.6% in August, while Italy’s rate rose to 4.1% from 3.2%, exceeding the European Central Bank’s 2% target and adding to pressure for further interest-rate increases.
The increases came as natural gas, petrol and diesel prices rose sharply, amid an energy-price crisis caused by the war between the United States and Iran. The European Central Bank has raised interest rates twice this year, while investors have increased their expectations for further hikes in recent weeks.
Increases in Germany and Spain
Inflation rose sharply in five major German states in September, pointing to a possible increase in Germany’s national inflation rate, which is due to be released later on Wednesday.
In Spain, data released on Tuesday showed inflation rising to 5% in September from 4.6% in August. The national data precede the release of euro zone inflation figures on Friday, with the rate expected to reach 3.6% in September, up from 3.2% in the previous month.
Markets expect four additional rate hikes
The European Central Bank expects inflation to accelerate from 3.3% in the third quarter to 3.6% in the final three months of the year, while economists say the actual peak is likely to be closer to 4% given very high energy costs.
Markets expect four more interest-rate increases over the coming year, in addition to the two moves already made by the bank last summer.
With few signs of a resolution to tensions in the Middle East on the horizon and winter approaching, an energy-price correction is unlikely any time soon
4% inflation scenario
Under an “adverse” scenario, the European Central Bank expects inflation to reach 4% in the fourth quarter of 2026 and the first three months of 2027. Economists say current energy prices are more consistent with this scenario than with the bank’s baseline scenario.
