Every one of the 21 euro zone economies recorded inflation above the European Central Bank's 2% target in October, CNBC reported. The spread between them was wide: Lithuania had the highest rate at 6.1%, Malta the lowest at 2.3%.
The bloc-wide figure of 4.0% is a flash estimate, the first and incomplete reading, published on Wednesday by Eurostat, the statistical office of the European Union. It matched the expectations of economists polled by Reuters, and it was the first euro area reading at or above 4% since September 2023, when inflation was 4.3%.
Key numbers
- 4.0% euro area annual inflation in October, up from 3.8% in September
- 20.8% energy inflation in October, up from 18.9% in September and the highest annual rate of the main components
- 2.5% the ECB's key interest rate, held last month after a 25 basis-point hike in September
- 0.6% the euro's gain against the U.S. dollar on Wednesday morning
Energy did most of the work
Officials said the increase was largely down to energy costs, where the annual rate climbed to 20.8% from 18.9% in September. Europe is a net energy importer, which leaves it exposed to external energy shocks, and prices there have risen steadily since the start of the Iran war, according to CNBC.
The rest of the picture was calmer. Policymakers said underlying inflation and wages were broadly stable, even with the headline rate at a three-year high.
In plain words: headline inflation counts everything a household buys, including fuel and power, so an import bill that jumps shows up in it quickly. Underlying inflation strips out the most volatile items to show what domestic costs and wages are doing. When the two diverge, as they did in October, the question for a central bank is whether the energy increase stays in the headline or works its way into wages and other prices.
The euro rose, but the dollar was also moving
The euro was up 0.6% against the U.S. dollar on Wednesday morning. That was not a one-sided move: the dollar fell against a basket of major currencies while counting continued in the U.S. midterm elections, CNBC reported. The yield on the 10-year German bund, broadly seen as the benchmark for euro zone bonds, was marginally higher.
Rate pricing barely shifted on the data. Shortly before the release, markets put the probability of an increase at the ECB's final meeting of the year in December at 71.8%; afterwards, at more than 72%.
Robert Mertens, global capital markets senior analyst at Validus Risk Management, told CNBC that "ongoing turmoil in the French bond market is placing constraints on ECB policy" and on the bank's capacity to get inflation under control.
Neither of the reports I read breaks the 20.8% energy figure down by fuel, and the Eurostat number is a flash estimate rather than a final one.
What to watch
- December the ECB's final policy meeting of the year; the bank held its key rate at 2.5% last month