Eurozone inflation hits 4.0% in October, highest since September 2023

Eurozone inflation reached 4.0% year on year in October, up from 3.8% in September, according to a Eurostat flash estimate published on 4 November. That is the highest reading since 4.3% in September 2023.

Energy did most of the work. Energy prices rose 20.8% from a year earlier, services 3.3%, food, alcohol and tobacco 1.6%, and non-energy industrial goods 1.2%. Prices rose 0.4% on the month. Core inflation, which strips out energy, food, alcohol and tobacco, held at 2.5%. Energy accounts for around 9% of the basket, so the surge feeds straight into the headline. Final October figures are due on 1 December.

The reading matched economists' forecasts, Bloomberg reported.

Headline inflation is now double the ECB's 2% target. Core, at 2.5%, is 1.5 percentage points below the headline rate but still half a point above target.

Why December is back in play

The ECB left its deposit rate at 2.50% at its October meeting, after raising it twice this year, most recently by 25 basis points on 10 September.

Bundesbank President Joachim Nagel said in a speech in Berlin on 3 November that a December increase is highly likely. "As things stand today, a December rate hike is highly likely. Unless the inflation outlook improves substantially, there appears to be little alternative to raising rates," he said, according to Biggo Finance. The decision will rest on new ECB projections running through 2029, which the central bank will publish at its December meeting.

Markets have moved. Brown Brothers Harriman's Elias Haddad said resilient growth and inflation expected to stay above target keep a December hike to 2.75% "firmly in play", with 86% priced in, TMGM reported.

The October hold rested on the premise that rapid inflation has not become entrenched. Officials have called the pause temporary. Bulgaria's Dimitar Radev said the hold does not mean the hiking cycle is over, and Slovakia's Peter Kazimir called it "not the finish line", Biggo Finance reported.

Wages stay quieter

The ECB's internal wage indicators point to slower pay growth in 2027, which argues against a wage-price spiral taking hold. Nagel is not reassured yet. He warned that rising energy prices "could gradually feed through into wage demands", adding that "if that happens, it will push prices up further."

Forecasts October has already overtaken

In September the ECB forecast headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. It put core inflation at 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.

October's 4.0% is a full percentage point above the 2026 average forecast, so the December round will have to rewrite the path. The September round also projected eurozone growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Growth has held up better than those numbers implied: the bloc expanded 0.4% in the third quarter, down from 0.6% in the second but far above the 0.2% consensus in a Reuters poll.

The ECB has warned that the balance of risks is tilted towards weaker readings as borrowing costs rise.

What happens next

Beyond December, investors have fully priced three further quarter-point increases by the end of 2027, with a small probability of a fourth, according to Philenews. Some economists expect the December move to be the last. A December hike would be the third increase this year and would raise financing costs for households and businesses already facing higher energy bills.

The trigger for anything beyond that is whether energy inflation spreads into wages and services.