ECB Faces Pressure as Euro Zone Inflation Surges to 3.8%

The euro zone's inflation rate surged to 3.8% in September, exceeding expectations of 3.6%, due primarily to soaring energy costs and a lesser extent by food prices.

A closely watched 'core' figure, which excludes volatile food and fuel prices, rose to 2.5% from 2.4%, driven by a pick-up in services prices, according to data from Eurostat, the EU's statistics agency.

The jump in headline inflation is likely to put pressure on the European Central Bank (ECB) to raise interest rates even higher than the two moves made this summer, but the muted increase in core figures suggests that high energy costs have yet to generate second-round impacts that could set off a hard-to-break inflation spiral.

Policymakers are divided on whether the recent surge in natural gas costs will feed into core prices more quickly, lifting business expenses and other costs, or if the labour market is relatively soft, limiting workers' ability to demand pay increases and curtail price growth.