Eurozone annual inflation climbs to 4% in October, putting pressure on ECB, first time since 2023

• The preliminary headline CPI for the euro area came in at 4.0% year-on-year in October, matching the expected rate.
• The previous month's reading was 3.8%.
• Core preliminary CPI also met expectations, at 2.5% year-on-year.
• That was unchanged from the prior month's 2.5%.

Euro zone annual headline inflation reached 4% in October, the first time it has been at that level since September 2023. The reading presents a challenge for ECB policymakers.

Rising energy prices are once again the culprit, with energy inflation accelerating to 20.8% in October compared to a year earlier. Month-on-month, energy prices rose 1.4%.

Nonetheless, monthly increases were widespread; the headline index rose 0.4% on the month in October. Food prices climbed 0.4% month-on-month, and services rose 0.2%.

The only good news is that core annual inflation remained unchanged at 2.5% in October, matching September's figure. However, the ECB cannot afford to become complacent. Services inflation remains stubborn, rising to 3.3% annually from 3.2% the previous month.

Consequently, pressure on policymakers persists as inflation threatens to broaden further. A larger and more prolonged jump in energy prices heightens the risk of spillover to other categories. This, in turn, increases the risks of second-round effects on the inflation outlook.

Thus, the ECB must stay watchful, facing a tough balancing act amid slowing growth momentum, particularly in France. This scenario also raises stagflation risks, which are expected to become a prominent topic next year.