Soaring Energy Prices Keep Pushing European Inflation. It Just Now Reached a Three-Year High.

Eurozone inflation kept climbing in September, fueled by soaring energy prices. The rate clocked in at 3.8% last month, a three-year high and above expectations. The figure is also up 0.6 percentage points from August, and core inflation stood at 2.5%, in line with expectations.

Energy led the increase, standing at 18.8%, compared with 14.3% in August. It was followed by "followed by services (3.2%, compared with 3.0% in August), food, alcohol & tobacco (1.4%, compared with 1.1% in August) and non-energy industrial goods (1.1%, compared with 1.2% in August)," Eurostat noted.

Earlier this month, the ECB raised interest rates, noting that the war between the U.S. and Iran keeps putting pressure on prices.

The benchmark rate now stands at 2.5% compared to the previous 2.25%. The body noted in a statement that the decision "underscores the Governing Council's commitment to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term."

The body went on to say that its baseline projections now stand at 3% this year, 2.5% in 2027 and 2.1% in 2028. Core inflation, in turn, is set to be stickier: "the baseline foresees 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028. Compared with June, the baseline projection for inflation in 2026 is unchanged, while it has been revised up for 2027 and 2028," the document says.

The ECB warned that outlooks remain "highly uncertain, with risks to the upside for inflation and to the downside for economic growth."

"In relation to the energy shock, the updated scenarios put together by staff illustrate the broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects," the document adds.

Staffers concluded that the decision leaves the Governing Council "well positioned to navigate the uncertainty caused by the conflict." However, it added that it "stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target in the medium term and to preserve the smooth functioning of monetary policy transmission."