Euro zone inflation hits 4% for first time in three years as interest rate hike looms — SkimNews
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- Euro zone inflation accelerated to 4% in October from 3.8% in September in a flash estimate that matched the Reuters economist poll; it was the first reading at or above 4% since September 2023's 4.3%.
- Euro zone energy inflation rose to 20.8% from 18.9% in September, with officials attributing the higher headline rate largely to surging energy costs; policymakers said underlying inflation and wages remained broadly stable.
- Lithuania posted the highest inflation rate among the 21 Euro zone economies at 6.1%, while Malta recorded the lowest at 2.3%; every country remained above the European Central Bank's 2% target.
- European Central Bank kept its key interest rate at 2.5% last month after a 25-basis-point hike in September; its final meeting of the year is in December.
- European Central Bank December rate-hike pricing rose from 71.8% shortly before the inflation release to more than 72% afterward.
- Euro rose 0.6% against the U.S. dollar on Wednesday morning; the dollar also fell against a basket of major currencies during U.S. midterm counting, while the 10-year German bund yield was marginally higher.
- Robert Mertens of Validus Risk Management cautioned that turmoil in the French bond market constrains ECB policy and its capacity to contain inflation, while easing French political unrest could permit a more aggressive hiking path.
Why it matters: With a December hike priced above 72%, the ECB faces a sharper trade-off: fighting 4% inflation while French bond turmoil limits its room to tighten. A more aggressive path than the Federal Reserve would strengthen the euro against the dollar, according to Robert Mertens.
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