PolicyMarket noteFriday 2 October 2026, 14:52
Euro area inflation jumped to 3.8%, but markets expect the ECB to wait
Energy prices were 18.8% higher than a year ago in September, and inflation reached its highest since 2023. Core inflation rose only to 2.5%, and markets see little chance of an ECB rise this month.
By The Notebook Desk
Consumer prices in the euro area rose 3.8% in the year to September, up from 3.2% in August, according to Eurostat’s flash estimate on Friday. It is the highest rate since September 2023, and above the 3.6% that economists had expected. Prices rose 0.6% in the month alone.
Energy did most of the work. Energy prices were 18.8% higher than a year earlier, up from 14.3% in August, and they rose 3.9% in September alone. Energy makes up about 9% of the basket, so on Eurostat’s weights it accounts for about 1.7 points of the 3.8% by our calculation, close to half.
The core is still close to target
Take energy out, and the picture is calmer. Inflation excluding energy, food, alcohol and tobacco, the measure the ECB watches for underlying pressure, rose to 2.5% from 2.4%. It has stayed between 2.2% and 2.6% since April. Services, the largest part of the basket, rose to 3.2% from 3.0%, the pick-up that moved the core. Food inflation rose to 1.4%, and the price of goods such as clothes and cars rose 1.1% on the year.
That gap between the headline and the core is the ECB’s dilemma. Prices are clearly rising faster. But so far most of the rise comes from fuel, gas and electricity, which the central bank cannot make cheaper, and much less from wages and services.
Lithuania, Greece and Spain run hottest
The jump was broad. Inflation rose in 17 of the 21 members. Lithuania had the highest rate, at 6.1%. Greece rose to 5.1% from 3.7%, one of the largest increases, and Spain reached 5.0%. In the two largest economies inflation was lower but rose fast: France to 3.4% from 2.6%, and Germany to 3.3% from 2.9%. Italy rose to 4.1% from 3.2%.
Estonia had the largest increase: its rate more than doubled, to 3.0% from 1.3%. Only Latvia saw inflation fall, to 2.9% from 3.0%.
Why the ECB may still wait
The ECB has already raised its deposit rate twice this year, to 2.25% in June and to 2.50% in September, as we reported on 29 September. Christine Lagarde, its president, has pushed back on the idea that rates must follow oil. “Interest rates do not move in lockstep with the price of energy,” she said in Dublin on 18 September, Reuters reported, because energy prices also hit growth and spending. She called the ECB’s approach “a measured response”.
Markets believe her. On Thursday, before the data, Central Bank Watch put the chance of an increase at the ECB’s meeting on 29 October at 8.7%. After the release, investors still saw the odds of a move this month as negligible, Reuters reported. They expect up to three more increases in the coming year, but the next one is not fully priced until January.
Jack Allen-Reynolds of Capital Economics expects the ECB to wait until December. He added a warning: “If energy prices rose further in the next few weeks, an October hike would not be a big surprise.”
What to watch
Oil is the swing factor. Brent fell back below $100 a barrel on Friday, after European governments discussed a French proposal to release emergency stocks of diesel and crude, The National reported. If that holds, energy inflation may peak soon.
| Date | Release | Why it matters |
|---|---|---|
| 16 Oct | Final euro area inflation for September | Confirms the flash, with the full detail |
| 29 Oct | ECB decision | Markets expect no change |
| 4 Nov | Flash estimate for October | The first reading after the oil price fell back |
Disclosure
This is analysis and opinion, not investment advice.