French, German and Italian Inflation Surges in September, Keeping ECB Rate Hike on the Table

Inflation accelerated sharply across major European economies in September, driven by surging energy costs and raising the prospect of another European Central Bank interest rate increase as soon as next month. France led the headlines, with consumer prices climbing to 3.4% year-over-year, the highest reading in more than two years, fueled by rising oil and gas prices and exceeding market expectations. Five German states reported higher inflation in September, pointing to an upside surprise in the national figure when it is released. Italy's preliminary harmonized CPI came in at 4.1% year-over-year, well above the consensus estimate of 3.7%.

The pressure extended beyond the eurozone. Polish inflation hit a 15-month high in September, strengthening the case for a rate rise by the National Bank of Poland. Kenyan inflation also accelerated to a 32-month high. Germany's unemployment rate held steady at 6.4% in September, matching expectations, offering little counterweight to the inflation concerns.

The ECB had already raised its deposit rate to 2.5% in September, its second hike of 2026 following an earlier move in June. With energy prices continuing to push headline inflation well above the bank's 2% target and the September data surprising to the upside across multiple countries, markets and analysts see growing conviction that policymakers will tighten again at their next meeting in October.