October 2, 2026 — Inflation across the euro zone accelerated sharply in September, increasing pressure on the European Central Bank as higher energy costs threaten to keep price growth elevated.
Consumer inflation across the 21 countries using the euro rose to 3.8% in September from 3.2% in August, according to Eurostat data. The figure was above the 3.6% increase economists had forecast in a Reuters poll.
Fuel and natural gas prices were the main drivers of the increase, while food costs also contributed.
Underlying inflation increased at a slower pace. The core measure, which excludes volatile food and fuel prices, rose to 2.5% from 2.4%, reflecting higher prices for services.
The latest figures present a complicated situation for the ECB. Headline inflation is now significantly above the central bank’s 2% target, potentially strengthening the case for additional interest-rate increases following two hikes during the summer.
However, the relatively modest rise in core inflation indicates that higher energy prices have not yet produced the broader second-round effects that could lead to a sustained inflation spiral.
Markets have been pricing in as many as three additional increases in the ECB’s 2.5% deposit rate over the coming year. The likelihood of an interest-rate increase this month is considered negligible, while the next increase is not fully reflected in market pricing until January.
Those expectations could shift quickly as new economic data emerges.
A key concern for policymakers is the length of time energy costs have remained elevated. Higher natural gas prices could eventually spread into other areas of the economy by increasing costs for electricity, heating and businesses.
Other economists cite a weaker labor market as a factor that could limit the potential for significant wage increases. Higher longer-term borrowing costs could also ease price pressures by making financing more expensive and curbing spending.
Financial stability presents another issue for the ECB. Borrowing costs have risen sharply, with higher U.S. Treasury yields affecting borrowers internationally. Investors are also seeking larger risk premiums for assets considered more vulnerable.
The gap between French and German government debt yields has reached multi-decade highs, raising concerns over debt sustainability.
Higher inflation combined with elevated borrowing costs leaves the ECB facing competing pressures. While headline inflation is moving further above its target, the relatively contained core reading and wider financial-market stress could support a cautious approach.
The latest data adds uncertainty to the outlook for European interest rates as policymakers determine whether higher energy costs will remain concentrated in headline inflation or begin spreading more broadly throughout the economy.
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