Euro Zone Inflation Surges, Piling Pressure on ECB to Hike Rates Again

The European Central Bank (ECB) is facing increased pressure to raise interest rates after inflation jumped across the euro zone in September, fueled by energy price shocks.

France's harmonized inflation rate was 3.4% year-on-year in September, up from 2.6% in August, while Italy's inflation rate rose to 4.1% from 3.2%. Germany's national inflation rate is expected to increase this month, with five key German states reporting sharp rises in September.

The ECB had previously lifted rates twice this year to combat rapid price growth, and investors have sharply increased their bets on further rate hikes due to soaring natural gas, petrol, and diesel prices. Energy inflation has surprised on the upside in all countries that have reported so far, with food inflation also rising modestly.

Markets expect another four interest rate hikes over the next year, on top of two moves already made this summer. With winter approaching and tensions in the Middle East remaining high, a correction in energy prices is unlikely soon, according to Oxford Economics' Rory Fennessy.