Euro zone inflation jumps to highest level in three years, paving way for another interest rate rise

Euro zone inflation shot up to a three-year high of 3.8 per cent in September, after the escalating conflict in the Middle East triggered a resurgence in oil and gas prices.The reading published by Eurostat on Friday was up from 3.2 per cent in August and higher than economists’ forecast of 3.6 per cent in a Reuters poll. Inflation rose at a faster pace than expected in all four of the euro zone’s largest economies, with Spain reporting an annual rate of 5 per cent. Rising inflation and concerns over the sustainability of public finances in more indebted countries, such as France, have triggered a surge in euro zone borrowing costs.READ MOREThat has pushed yields of French 10-year government bonds up as much as 0.1 percentage points to 4.96 per cent on Thursday, their highest level since 2002. They have since come back slightly to 4.92 per cent.September marked the seventh month in a row that inflation in the 21-country bloc was above the European Central Bank’s (ECB) medium-term 2 per cent target. The ECB was the first central bank in the G7 to respond to the Middle East energy shock, increasing borrowing costs by a quarter point in June and again in September.Traders are betting that policymakers will respond by raising interest rates by another quarter point to 2.75 per cent by the end of the year. Top ECB official Isabel Schnabel said this week that rate-setters must act pre-emptively to stop high energy prices from feeding into broader prices and wages. – Copyright The Financial Times Limited 2026