Euro Zone Inflation Surges Amid Energy Price Shocks

Inflation in the euro zone has jumped higher than expected across several major economies this month, putting additional pressure on the European Central Bank to raise interest rates. The energy-price shock from the Iran war is largely responsible for the surge in inflation.

The ECB has raised rates twice already this year to combat rapid price growth and investors have sharply increased their bets on further rate hikes as natural gas, petrol, and diesel prices have skyrocketed.

France's harmonized inflation rate rose 3.4% year-on-year in September, surpassing Italy's 4.1%, both above the ECB's 2% target. Germany's national inflation rate is expected to follow suit.

The unexpected surge in energy prices has led economists to predict a peak inflation rate of around 4% by year-end, higher than the ECB's forecast of 3.6%. Markets now anticipate another four interest rate hikes over the next year on top of two moves already made this summer.