An Indian summer of inflation began in the eurozone
Summary
- Preliminary inflation figures in major eurozone countries, including Germany, France, and Spain, have exceeded expectations, with significant year-on-year increases reported in September.
- Rising energy prices are identified as the primary driver of the accelerated inflation, with core inflation in Germany remaining stable at 2.4% excluding energy and food prices.
- The European Central Bank (ECB) faces challenges in addressing inflation, as it approaches a scenario where price increases could reach four percent by the end of this year and the beginning of next year.
- The strengthening dollar further complicates the situation for the eurozone, potentially leading to more expensive energy imports, prompting the ECB to consider further rate hikes from the current 2.5% deposit rate.
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Automatic translation: Originally published in Finnish 30/09/2026, 13:51 GMT. Give feedback here.
The major eurozone countries are experiencing a true Indian summer regarding inflation, meaning a warm period in September and October (Altweibersommer in German). Preliminary inflation figures clearly exceeded expectations in Germany, France, and Spain.
Harmonized index of consumer prices, change y-o-y, %
Source: LSEG
ECB deposit facility rate, %
Source: LSEG
A preview of the warming inflation was already received yesterday when Spain reported its preliminary and harmonized September figures. Price increases accelerated to 5.0% year-on-year and 0.6% on a monthly basis. Today, France was first to follow suit, with consumer prices rising by 3.4% year-on-year and 0.4% month-on-month. Later in the afternoon, they were joined by Germany, where prices rose by 3.3% year-on-year and 0.6% month-on-month, as well as Italy, where the year-on-year change in prices was 4.1%.
The difference was clear compared to August, as the price change in September was 0.4–0.8 percentage points faster than in August. We don't have to look very far for the reasons, as the rising energy price is now the key driver of inflation. For example, in Germany, core inflation excluding energy and food prices remained at 2.4% for the third consecutive month. The European Central Bank certainly also recognizes the root causes of inflation very well, and the central bank is now caught between a rock and a hard place regarding its monetary policy: inflation should be countered, but the means are limited. In any case, inflation is now heading toward the central bank's "bad" scenario, where price increases approach four percent at the end of this year and the beginning of next year.
For the eurozone, the situation is further exacerbated by the strengthening dollar, as raw materials trade in dollars, and energy may therefore become even more expensive when converted into euros. This is why the central bank still has rate hikes ahead of it, a point also alluded to by President Christine Lagarde in her speech on Monday when she mentioned that a "moderate" response to price pressures remains on the central bank's table. From the current level of 2.5%, the deposit rate can still be raised relatively carefree toward three percent, but after that, we will certainly see some kind of pain threshold for borrowers and investors. Excessive rate hikes would kill the nascent economic growth, so the central bank must once again be careful.
