Energy Costs Drive Inflation Higher Across Europe

Energy prices continued to drive inflation higher across several European countries in September, according to the latest flash estimates. In the Euro area, annual inflation is expected to rise to 3.8% in September 2026, up from 3.2% in August. The Central and Eastern European (CEE) region also saw significant increases, with Croatia reporting a 4.7% year-over-year (y/y) inflation rate, Poland at 4.0% y/y, Slovenia at 3.3% y/y, and Slovakia at 3.1% y/y. The rise in energy prices was a key factor, with Eurozone energy prices surging by 18.8% y/y, Slovakia at 13.8% y/y, and Poland seeing a 4.9% y/y increase in energy costs, though fuel prices in Poland spiked by 36.1% y/y.

Slovakia’s inflation remained relatively stable at 3.1% y/y, largely due to a decline in food prices that offset the rise in fuel prices. Similar trends were observed in other countries, where energy price hikes contributed significantly to the overall inflation figures. Czechia and Hungary are expected to release their September inflation data soon, with projections suggesting a 0.4-0.5 percentage point increase, aligning with the trends seen in other CEE countries.

Despite the rising inflation, economic activity in the Eurozone and the region has not been significantly impacted. This combination of elevated inflation and resilient economic activity raises the likelihood of additional interest rate hikes or a prolonged period of restrictive monetary policy. Meanwhile, S&P Global Ratings affirmed Romania’s ‘BBB-‘ rating, citing expectations that the country will form a government capable of adopting a credible budgetary framework for 2027-2028.

In the foreign exchange (FX) market, the Euro weakened against several CEE currencies, with EURRON moving above 5.30, EURHUF around 368, and EURPLN reaching as high as 4.37. Long-term yields declined across the region over the past week, reflecting broader global developments.