Monetary policy: Inflation in the euro area reaches the four percent mark

Frankfurt. Inflation in the euro zone has reached the four percent mark for the first time in three years. Goods and services rose in price by 4.0 percent in October compared to the same month last year. This emerges from a flash estimate from the statistical office Eurostat on Wednesday morning.

In September the inflation rate was 3.8 percent. Economists had expected another increase. They recently raised their forecast in view of the price pressure in individual euro economies - in Italy, for example, inflation has jumped to 5.6 percent.

The ECB has set itself a target of a rate of just two percent. The new data therefore strengthens the expectation that it will raise interest rates in the euro area again at the end of the year. The deposit interest rate would then be 2.75 percent.

ECB President Christine Lagarde has already announced this step in an unusually clear manner after the interest rate decision last week. The position of her colleagues on the Governing Council illustrates the urgency.

Bundesbank boss Joachim Nagel confirmed on Tuesday that an interest rate increase was “very likely necessary”. There would be, said Nagel, “hardly any way around an interest rate increase if the inflation outlook does not improve significantly.” Austria's central bank chief Martin Kocher emphasized that the risks to inflation “have clearly increased”.

Above all, the sharp rise in energy prices is driving inflation in the euro area. In October they were almost 21 percent above the previous year's level. If you leave out energy and foodstuffs, which are equally susceptible to fluctuations, then price pressure has been comparatively constant for several months, but above target. In October, so-called core inflation was 2.5 percent.

However, there is a growing risk that more and more companies will pass on higher energy prices to customers. The monetary authorities are also worried that employees will seek compensation through higher wages. Experts speak of indirect and second-round effects.

In response, the ECB raised key interest rates in June and September this year and subsequently paused interest rates in each case. Up to three further interest rate increases are priced into the futures markets, which would bring the ECB's key interest rate above three percent. Most economists consider this to be exaggerated and believe that the end of the interest rate hikes is in sight.