Eurozone inflation rose to 4% in October, its highest in three years, Eurostat said on Wednesday, strengthening expectations that the European Central Bank (ECB) will raise interest rates in December.
That is up from 3.8% in September and twice the ECB's 2% target. The pressure is uneven: inflation rose in 13 of the 21 eurozone countries and fell in six, including Germany. The ECB sets one rate for all of them.
Energy prices increased 20.8% annually in October, accelerating from 18.9% in September and accounting for nearly half of the eurozone's overall inflation rate.
The increase reflects continued pressure from the US-Israeli war with Iran, which began on February 28 and has restricted shipping through the Strait of Hormuz, driving up energy costs across a region heavily dependent on imports.
Food prices also showed signs of accelerating, with unprocessed food inflation reaching 4.6%, compared with 4% in September.
Services inflation edged higher to 3.3%, while non-energy industrial goods prices increased 1.2%.
Core inflation, which strips out energy, food, alcohol and tobacco, held at 2.5%, suggesting that broader price pressures have yet to build significantly.
However, the ECB warned on October 29 that "the longer energy prices stay high, the more likely they are to drive up broader inflation."
Economists cited by Reuters warn that low gas reserves could push heating costs higher this winter. ECB President Christine Lagarde flagged a similar risk on October 29 for a scenario in which "supply is disrupted further or an unusually cold winter coincides with low storage levels."
Italy recorded the largest increase, with inflation jumping from 4.2% to 5.6%, largely reflecting higher regulated energy tariffs, according to Euronews.
Belgium's rate climbed to 5.2%, while Greece reached 5.6% and Bulgaria recorded 6%.
Lithuania maintained the eurozone's highest inflation rate at 6.1%.
Germany bucked the broader trend, with inflation declining from 3.3% to 2.8%, supported by temporary fuel tax reductions introduced in October.
Spain and Luxembourg also registered modest declines.
The ECB maintained its deposit rate at 2.5% on October 29, following increases in June and September. The last time the ECB began raising rates, in July 2022, inflation had already hit a record 8.6% in June; it went on to peak at 10.6% that October.
A long list of policymakers, including the heads of the German and Italian central banks, have signaled that a December move is now likely, Reuters reported. Lagarde said on October 29 that "unless there was a major development, the direction of travel is quite clear for all of us," adding: "We are not pre-committing to a particular rate path."
Pantheon Macroeconomics economists Claus Vistesen and Melanie Debono expect a 25-basis-point hike in December, followed by a final increase in March 2027.
Their projections suggest inflation could reach 4.1% in November, 4.3% in December and peak at 4.5% in January. BBVA Research expects "one final hike" in December, then a long pause.
On Wednesday, prediction market Kalshi put the odds of a quarter-point rise at the ECB's December 16–17 meeting at about 86%.
The ECB said on October 29 that energy prices had overshot its September staff projections and would likely keep headline inflation "well above target over the coming quarters." Those projections had inflation peaking at 3.6% in the last quarter of 2026 and easing to 2.5% by mid-2027. Reuters reported on Wednesday that the ECB now expects inflation to stay above 4% for much of the first half of 2027.
Sweden's central bank raised its policy rate to 2% from 1.75% on Wednesday and indicated further increases could follow, while 54 of 63 economists in a Reuters poll expect the Bank of England to lift its benchmark rate to 4% on Thursday.
For the ECB, the central question remains whether elevated energy prices will continue driving headline inflation or increasingly influence wages, services and broader consumer costs. Its October 29 statement noted that "wage pressures remain moderate."
The answer could determine whether, and how far, policymakers raise borrowing costs. The next test is the ECB's December 16–17 meeting, where new staff projections are due and Lagarde, who has said she will step down on February 7, 2027, will chair one of her last rate decisions.