Euro-Area Inflation Surges to 3.8%, Fueling ECB Rate Hike Expectations

Inflation in the euro area has picked up pace to 3.8% in September, exceeding forecasts and nudging the European Central Bank (ECB) towards further rate hikes.

The increase is attributed to higher energy costs, fueled by the ongoing Iran war, which has pushed oil and natural gas prices higher. Core inflation, excluding volatile categories such as energy, rose to 2.5%, while services saw a gain of 3.2%.

Spain led the four largest euro-area economies with an inflation rate of 5%. The ECB has already raised borrowing costs twice this year, and policymakers are concerned that untargeted measures to cushion households and businesses could exacerbate the broader inflation problem.

ECB President Christine Lagarde stated there's no rush to tighten monetary policy further, arguing that higher market yields will cool growth and limit the energy shock's impact on overall prices. However, traders have trimmed bets on an October hike, but still expect at least two more rate increases.