Inflation in the euro zone unexpectedly rises to 3.8 percent

Consumer prices in the euro zone are rising faster than expected. The ECB now has to think even more about whether it will raise interest rates further at the end of October.

Frankfurt. The inflation data from the individual euro countries had already indicated it, now it is official: consumer prices for goods and services in the euro area are currently rising faster than expected. In September, the inflation rate rose to 3.8 percent, as the EU office Eurostat reported on Friday.

The jump from 3.2 percent in August to the current three-year high surprised many analysts. According to the financial service Bloomberg, they had forecast an average inflation rate of 3.5 percent. This makes the question even more urgent for the ECB as to whether it needs to further raise key interest rates quickly.

After two interest rate hikes in June and September, the ECB could set a higher pace by raising rates at the end of October rather than waiting until December. However, investors are interpreting current comments from ECB President Christine Lagarde and ECB Director Isabel Schnabel as a rejection of faster interest rate increases.

Schnabel said in a speech in Luxembourg on Wednesday evening that long-term inflation expectations were still quite stable, “close to our two percent target”. As long as this is the case, monetary policy can proceed with patience. The central bank sees price stability at two percent.

“The coming months will provide a clearer picture of the extent to which current price pressures are gradually being reflected in core inflation and inflation expectations,” said Schnabel. “They will also show how the economy reacts to the interest rate increases that have already taken place.”

Unexpectedly high inflation estimates in the EU industrialized nations

Core inflation excludes the highly fluctuating energy and food prices. It gives economists and central bankers better information about inflation trends across the economy.

Schnabel's comments are the clearest indication yet that the ECB is likely to take its time until December. When the interest rate hardliner gave her speech, she was aware of the unexpectedly high inflation estimates from Germany, France, Italy and Spain. Nevertheless, she struck a more moderate tone, having campaigned energetically for a tighter monetary policy since the spring.

On Monday, Lagarde had already dampened expectations of an interest rate increase in four weeks. At a hearing in the EU Parliament, the head of the ECB referred to rising bond yields. Higher market interest rates would slow growth and limit the impact of high energy prices on inflation.

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