Eurozone Inflation Surges to Three-Year High on Soaring Energy Costs

The European Central Bank (ECB) is likely to increase interest rates further as eurozone inflation hit its highest level in three years. According to Eurostat, consumer prices rose by 3.8% from a year ago in September, exceeding the median estimate of 3.7%. This surge in inflation has been driven mainly by energy costs, with core inflation, excluding volatile items like energy, rising to 2.5%, as anticipated.

The inflation rate has increased across all four largest members of the euro area, with prices jumping more than expected in Spain, reaching a high of 5%. The ECB is concerned that if left unchecked, this energy shock could become embedded in the economy through higher wages and company selling prices. Despite this, some policymakers, including President Christine Lagarde, have expressed caution against further tightening monetary policy.

The ECB's executive board member, Isabel Schnabel, also emphasized the need for a 'clearer picture' of inflation before making any decisions. The bank is expected to raise interest rates at least twice more, but bets on a move this month are fading. Meanwhile, governments across Europe are struggling to support households and firms amid a global bond sell-off.