Eurozone inflation soars to 3.8% in September
The dramatic rise in Eurozone inflation to 3.8% in September signals increasing price pressures that could influence European Central Bank (ECB) policy decisions. Per the full note from ing-think, primarily driven by record energy prices, this jump may not be a temporary spike, as broader inflation indicators suggest persistent cost increases. Although ECB President Christine Lagarde expresses limited concerns about second-round effects from these price changes, the data implies a careful balancing act ahead for the central bank. With expectations around future wage growth and ongoing elevated energy costs, the market remains poised for potential ECB action, especially as core inflation shows signs of creeping upwards.
What the desk is arguing
The significant rise in Eurozone inflation suggests that the economic landscape is shifting towards sustained inflationary pressures. Per the full note from ing-think, the inflation rate increased from 3.2% in August to 3.8%, with energy being the leading contributor to this upward trend.
While energy prices are central, other categories are starting to show upward momentum as well; food inflation has notably risen, and preliminary signs of wage growth could suggest impending broader inflation. The ECB may need to reconsider its dovish stance if these trends continue.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.075 with a range between 1.04 and 1.12, which encompasses forecasts from major firms: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This analysis aligns with the jpmorgan perspective, which expects a similar upward trajectory given the inflation data, while bofa remains conservative, targeting the lower end of the spread.
How other firms see it
Firms like jpmorgan and citi share a bullish outlook on the Euro, expecting sustained increases in response to inflation metrics. Conversely, bofa and hsbc are more cautious, suggesting that external economic pressures may push the Euro downward.
Market participants should also keep an eye on the EUR/USD dynamics as they reflect the expected movements within Eurozone monetary policy, specifically linked to inflation indices and ECB communications.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Eurozone inflation reached 3.8% in September, largely due to soaring energy costs.
- 02Core inflation and food prices are showing early signs of increasing pressures.
- 03The ECB may need to adjust its current policy stance in response to ongoing inflation trends.
- 04Persistently high energy prices could lead to second-round effects on wage growth.
Market implications
All eyes will be on the ECB's upcoming communications as they navigate this inflation landscape. Market levels around 1.075 will be critical, with traders assessing any forthcoming ECB statements for hints on policy changes in response to these inflation dynamics.
Risks to this view
Should inflationary pressures ease or if wage growth fails to materialize as anticipated, the ECB could opt for a more dovish stance than currently expected. Additionally, significant geopolitical events that lead to energy price stabilization could also change the trajectory of inflation discussions.
Older quick take Quick take Published 10:34 Eurozone inflation soars to 3.8% in September The increase from 3.2% marks the fastest jump since March, the first month of the Middle East war. While it’s still mainly driven by energy prices, broader inflationary pressures are mounting as energy prices are expected to stay elevated Euro 95 petrol prices have now reached an all-time high, which is weighing significantly on the eurozone's inflation basket Ouch. Eurozone inflation blew past expectations in September, soaring to its highest level since 2023.
Energy inflation remained the main driver of the higher rate. Despite oil prices remaining somewhat below peaks seen in 2022 and this spring, Euro 95 petrol prices have now reached an all-time high. This is weighing significantly on the inflation basket for the moment.
But eyes are also on other price categories. ECB President Christine Lagarde voiced her surprise at the limited pass-through of higher energy costs to other inflation categories at the last ECB press conference. With food inflation ticking up from 1.1 to 1.4% and core inflation rising from 2.4 to 2.5%, there seems to be some sign of increased pass-through, although this is very preliminary.
In fact, food inflation is still lower than in June, and core inflation has been moving between 2.4 and 2.6% since May. But energy prices are expected to remain higher for some time to come, and the economy is trucking along decently. Early signs of faster wage growth can also be found, for example, in the wage growth indicator from Indeed, which has now risen for five months in a row.
With wage growth increasing, concerns about second-round effects remain alive and kicking. Lagarde sounded somewhat dovish earlier this week, pointing to limited second-round effects and already tighter financial conditions – but the ECB still has work to do with inflation significantly higher in September and broader inflationary pressures remaining. Inflation Eurozone Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Bert Colijn Chief Economist, Netherlands Older quick take
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