Eurozone Inflation Jumps to 3.8% – Energy Prices Nearly Double the ECB's Target
Lithuania, Bulgaria, and Cyprus lead the surge. Energy alone accounts for almost half of the headline figure. Markets now see a 91% chance of another rate hike this month.
Inflation in the eurozone jumped to 3.8% in September, hitting a three-year high and exceeding economists' expectations of 3.6%. Almost the entire spike came from a single segment of the consumer basket: energy.
Energy prices rose 18.8% year-on-year, up from 14.3% in August. In September alone, energy became 3.9% more expensive. Energy accounts for roughly 9% of the eurozone inflation basket, but at an annual increase of 18.8%, it added about 1.7 percentage points to the overall inflation rate of 3.8%. Nearly half of the headline figure comes from energy alone.
This is the highest reading since September 2023, when inflation stood at 4.3%. It is almost double the European Central Bank's 2% target, which the ECB considers consistent with price stability.
Core inflation, which excludes energy, food, alcohol, and tobacco, looks calmer. It rose only to 2.5% from 2.4%, matching forecasts exactly. That gap poses a key question for the ECB: is the current surge merely a temporary energy shock, or the beginning of broader price pressure?
Services inflation rose to 3.2% from 3.0%. Services make up the largest share of the basket, around 47%, and include rent, restaurants, travel, and insurance. Food, alcohol, and tobacco prices increased 1.4%, up from 1.1% in August. Within that group, inflation on unprocessed food such as fresh fruit, vegetables, and meat jumped to 4.0% from 2.7%. Non-energy industrial goods, including cars, clothing, and household appliances, rose 1.1%, slightly slowing from 1.2%. That was the only major category where annual inflation declined.
Lithuania recorded the highest annual inflation rate in the eurozone at 6.1%, up from 5.6% in August. Bulgaria, which joined the euro on January 1, 2026, followed at 5.6%. Cyprus and Luxembourg stood at 5.2% each, then Greece at 5.1% and Spain at 5.0%. In total, six of the 21 eurozone members recorded inflation at or above 5%. In ten countries, inflation was at or above the eurozone average of 3.8%.
At the other end of the scale, Malta recorded the lowest rate at 2.4%, followed by Finland at 2.6% and Latvia at 2.9%. Latvia was the only member state where annual inflation slowed in September.
Inflation accelerated in all four of the eurozone's largest economies. Italy saw the sharpest rise, with the annual rate climbing to 4.1% from 3.2%, while prices rose 2.0% in a single month — the largest monthly increase in the currency bloc. France followed, with inflation rising to 3.4% from 2.6%. As a result, French inflation is now higher than Germany's, where the rate increased to 3.3% from 2.9%. Spain remains the leader among the four, with inflation reaching 5.0% from 4.6% in August.
On September 10, the ECB raised its three key interest rates by 25 basis points. The deposit facility rate now stands at 2.50%. This was the second hike this year, following a similar move in June. Higher rates make borrowing more expensive for households and companies, which typically dampens spending. Over time, slower demand reduces pressure on prices.
The ECB's September forecast assumes headline inflation will average 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. The next meeting of the bank's leadership will take place on October 28-29 in Frankfurt, with the decision announced on October 29. No new ECB staff forecasts will be presented at that meeting; the next package is expected in December.
September's data delivered a fresh warning to the ECB: headline inflation is well above target and still rising. According to market forecasts, the probability of another ECB rate hike at the end of the month stands at 91%.
For now, the eurozone is caught between an energy shock it cannot control and a central bank that may have to raise rates again to keep expectations anchored. Lithuania, Bulgaria, and Cyprus are hurting most. Italy and France are catching up fast. And the ECB, meeting in three weeks, has little room to manoeuvre. The energy crisis is not just a geopolitical problem. It is now a monetary one.
Written by Andreas Hofer andreas.hofer@alpineweekly.com