Inflation in the eurozone reached its highest level in three years last month, driven primarily by rising energy costs, according to data released by the European Union’s statistics agency. Consumer prices in the 21-nation currency bloc were 3.8% higher in September compared to the same month in 2024, marking an increase from an annual inflation rate of 3.2% in August. This represents the fastest rate of price growth since September 2023.
The inflation figure exceeded market expectations, with economists surveyed prior to the release having forecast a 3.6% increase. More recent inflation reports from member states including France and Italy have pointed to stronger than anticipated price pressures.
The surge in inflation has been attributed largely to escalating energy prices amid geopolitical tensions and supply concerns. Brent crude oil prices surpassed $105 per barrel during September, partly influenced by intensified military conflict in the Middle East. Additionally, natural gas prices rose as European countries prepared for the winter season.
Energy prices were recorded as nearly 19% higher compared to the previous year, approaching levels last seen in 2022. At that time, Russia’s cutoff of natural gas supplies to Europe following its full-scale invasion of Ukraine contributed to sharp price spikes in the energy sector.
In response to persistent inflation, the European Central Bank (ECB) raised its key interest rate to 2.5% in September, marking the second increase this year. The ECB has maintained that it cannot overlook the impact of soaring energy costs on overall price levels. Inflation has remained above the ECB’s 2% target since March, underscoring ongoing price pressures.
However, the central bank has noted limited evidence that elevated energy prices are passing through significantly to other parts of the economy. Core inflation, which excludes volatile energy and food prices, rose modestly to 2.5% in September from 2.4% in August, suggesting muted broader price pressures. Similarly, inflation in the labour-intensive services sector edged up slightly to 3.2% from 3.0%.
Overall economic growth in the eurozone strengthened in the second quarter, supported by more resilient consumer spending despite higher energy costs. Nonetheless, the renewed increase in energy prices last month raises concerns that growth may slow in the final quarter of the year.
“The eurozone economy has been resilient in the face of energy price shocks and elevated geopolitical uncertainty, but higher inflation will test this as we enter the last quarter of the year,” said Diego Iscaro, an economist at S&P Global Market Intelligence.
ECB policymakers, including President Christine Lagarde, continue to emphasize that wage pressures have not yet intensified significantly in response to rising energy prices. However, labour market data shows historically low unemployment levels across the euro area, with some economists warning that ongoing labour shortages, particularly in Germany, could pose risks of more sustained inflation going forward.