Shoppers at Römerbergplatz in Frankfurt, Germany, Wednesday, August 12, 2026.
Ben Kirb | Bloomberg | Getty Images
Eurozone inflation rose to a three-year high of 4% in October, preliminary figures showed on Wednesday.
The figure was in line with expectations from economists polled by Reuters and was up from 3.8% in September.
Officials said the increase was mainly due to higher energy costs, with energy inflation rising to 20.8% from 18.9% in September. As a net importer of energy, Europe is vulnerable to external energy shocks, and prices have been rising steadily since the start of the Iran war.
In October, euro zone inflation reached or exceeded the 4% threshold for the first time since September 2023, when it reached 4.3%.
Inflation rates varied across the 21 euro area countries, with Lithuania recording the highest rate of inflation at 6.1%, while Malta had the lowest at 2.3%. Inflation rates in all countries in the euro area are above the European Central Bank’s target of 2%.
of EUR It rose 0.6% against the US dollar on Wednesday morning. green back Yields fell against a basket of major currencies as vote counting continued in the US midterm elections. 10 year german federal bond Widely seen as the benchmark for euro zone bonds, it rose slightly.
Policymakers said underlying inflation and wages were largely stable, even though inflation was at a three-year high.
Interest rate hikes loom, but turmoil in France could complicate policy
The European Central Bank kept its key interest rate unchanged at 2.5% last month, after raising it by 25 basis points (bp) in September.
Just before Wednesday’s inflation report, markets had priced in a 71.8% chance of a rate hike at the ECB’s final meeting of the year in December. After the data was released, the market had priced in a more than 72% chance of interest rates rising.
Robert Mertens, senior global capital markets analyst at Validus Risk Management, warned that “the ongoing turmoil in the French bond market is constraining ECB policy and its ability to control inflation.”
“The ECB could pursue a more aggressive policy of raising interest rates if the political situation in France eases,” he said. “If the ECB is able to tighten more aggressively than the Federal Reserve, we could see more support for the euro and an upside against the dollar.”
