Eurozone inflation hits 4%, boosting ECB rate hike bets

Eurozone consumer prices rose 4.0% in the year to October, up from 3.8% in September, according to a flash estimate from Eurostat released Wednesday, November 4. This is the first time the rate has reached 4% since September 2023, when it stood at 4.3%, CNBC reported. Inflation is now running at twice the European Central Bank's 2% target. The reading is likely to strengthen expectations of another rate hike in December.ec.europa.eu+1

Energy drives the increase

Energy prices rose 20.8% from a year earlier, up from 18.9% in September. Services inflation edged up to 3.3%, and food, alcohol and tobacco rose 1.6%, Eurostat said. Core inflation, which excludes energy, food, alcohol and tobacco, held at 2.5%. Euronews estimated that energy accounted for about 1.9 percentage points of the headline figure, almost half of the total. Europe imports much of its energy, and prices there have risen steadily since the Iran war began, CNBC noted.cnbc.com+2

Italy had the biggest jump of any member. Its rate rose to 5.6% from 4.2%, and prices climbed 1.2% in October alone, mostly because of regulated energy tariffs, Euronews reported. Belgium rose to 5.2% from 4.5%. Lithuania still had the highest rate at 6.1%, and Malta the lowest at 2.3%. Germany went the other way, with its rate falling to 2.8% from 3.3% after a fuel-tax cut took effect on October 1, according to Euronews.euronews.com

December hike in focus

The ECB kept its deposit rate at 2.5% on October 29, having raised it earlier in the year. Christine Lagarde said policymakers had discussed another increase but agreed to wait, Euronews reported. After the data came out, markets put the chance of a December hike at more than 72%, CNBC said. The bank's next meeting is on December 16–17.cnbc.com+1

"This inflation print adds to the already strong case for an ECB rate hike in December," said Nicola Nobile of Oxford Economics. Pantheon Macroeconomics expects inflation to peak at 4.5% in January, according to Euronews. Robert Mertens of Validus Risk Management warned that "ongoing turmoil in the French bond market is placing constraints on ECB policy," CNBC reported.euronews.com+1

Muted market reaction

The inflation figures did little to move markets, which were reacting mainly to the US midterm election results. The Euro Stoxx 50 and Germany's DAX rose in morning trading, Euronews reported. The euro also gained against the dollar, EUR/USD, as the dollar weakened, CNBC said. Eurostat will publish full October data on November 18.cnbc.com+1