Key Notes
- Eurozone annual inflation accelerated to 4% in October, while monthly prices rose 0.4%, above the 0.3% consensus forecast.
- Core inflation held at 2.5% as annual energy inflation increased to 20.8%, widening the gap between headline and underlying price growth.
- The figures follow the ECB’s decision to hold its deposit rate at 2.5% as policymakers weigh inflation risks against pressure on growth.
Eurozone inflation accelerated to 4% in October, twice the European Central Bank’s medium-term target, as energy prices rose more than 20% from a year earlier. The increase in headline inflation contrasted with a steady underlying reading, leaving policymakers to assess how far the energy shock will spread through the economy.
Consumer prices rose 4% from a year earlier, up from 3.8% in September, Eurostat’s flash estimate showed on Wednesday. Core inflation, which excludes energy, food, alcohol and tobacco, remained at 2.5%.
Prices increased 0.4% from September, slowing from the previous month’s 0.6% rise but exceeding the 0.3% forecast tracked by Trading Economics. The annual headline figure matched its 4% consensus estimate, while the core reading was also in line with expectations.
Energy Prices Keep Headline Inflation Elevated
Energy inflation accelerated to 20.8% from 18.9% in September, the highest annual rate among the main spending categories. Energy prices also increased 1.4% over the month, keeping pressure on household budgets and business costs.
Other categories showed smaller increases in annual inflation. Services prices rose 3.3%, compared with 3.2% in September. Inflation in food, alcohol and tobacco increased to 1.6% from 1.3%, while non-energy industrial goods inflation edged up to 1.2% from 1.1%.
The unchanged core rate provides a different signal from the headline acceleration: stripping out the excluded categories, annual inflation did not pick up in October. It nevertheless remained above 2%, while the increase in services inflation gives policymakers another measure to watch for persistent domestic price pressures.
ECB Faces a Difficult Policy Balance
The release follows the ECB’s October 29 decision to leave its deposit rate at 2.5%, as we previously reported. The main refinancing rate stayed at 2.65%, and the marginal lending rate at 2.9%.
In its policy statement, the central bank warned that higher energy prices posed upside risks to inflation and downside risks to growth. It said underlying inflation had been broadly stable and wages had not yet responded materially to the energy shock, while financing conditions had tightened.
October’s figures leave that tension unresolved. A prolonged energy shock can lift companies’ costs and eventually feed into other prices, but it also reduces consumers’ spending power. Stable core inflation alone does not settle the question of whether another rate increase will be needed.
Growth and National Differences Complicate the Outlook
The eurozone entered the quarter with continuing economic growth. Output expanded 0.4% in the third quarter from the previous three months and 1.3% from a year earlier, as we reported after the preliminary GDP release. Quarterly growth had slowed from 0.6% in the second quarter.
Inflation also varied markedly across the currency bloc. Germany’s annual rate fell to 2.8% from 3.3%, while France’s increased to 3.8% from 3.4% and Italy’s climbed to 5.6% from 4.2%. The ECB sets one policy rate for economies experiencing different combinations of price pressure and growth.
The October inflation figures remain provisional, with Eurostat scheduled to publish full data on November 18. The ECB has committed to a data-dependent, meeting-by-meeting approach rather than a predetermined rate path. Whether energy costs begin to affect wages and broader prices will be central to its next assessment.
