Brussels, 3 October, (Brussels Morning Newspaper) – The European Central Bank is facing renewed pressure over ECB interest rates after euro-area inflation accelerated to 3.8% in September, intensifying scrutiny of whether policymakers will need to tighten monetary policy again this year.
Eurostat’s preliminary figures, published on 2 October, showed annual inflation climbing from 3.2% in August. The increase leaves inflation substantially above the ECB’s 2% medium-term target and puts the cost-of-living outlook back at the centre of Europe’s economic debate.
The latest figures are particularly significant because the ECB has already raised borrowing costs twice this year as higher energy prices and geopolitical tensions revived inflation risks.
Energy costs push eurozone inflation higher
Energy remained the strongest source of price pressure in September. Eurostat estimated that energy prices were 18.8% higher than a year earlier, accelerating from 14.3% in August.
Services inflation also increased, reaching 3.2%, compared with 3.0% the previous month. Food, alcohol and tobacco inflation rose to 1.4% from 1.1%.
Underlying inflation showed a less dramatic increase. Inflation excluding energy, food, alcohol and tobacco edged up to 2.5% from 2.4%.
That distinction will matter to policymakers because the ECB must assess whether the energy shock is spreading more broadly through wages, services and consumer prices or remains concentrated largely in volatile energy markets.
ECB already raised borrowing costs in September
The ECB increased its three key policy rates by 25 basis points at its 10 September meeting.
The deposit facility rate was raised to 2.50%, the main refinancing operations rate to 2.65% and the marginal lending facility rate to 2.90%, with the changes taking effect on 16 September.
The September move followed a quarter-point increase in June and a decision to leave rates unchanged in July.
The renewed inflation surge now adds another layer of difficulty to the debate over ECB interest rates, particularly as policymakers attempt to control prices without putting unnecessary pressure on economic growth and financial markets.
Lagarde says ECB will remain data-dependent
ECB President Christine Lagarde said following September’s meeting that the Middle East conflict was generating significant inflationary pressure and that inflation was expected to remain above the central bank’s target for an extended period.
The ECB’s September projections forecast headline inflation averaging 3.0% in 2026, before easing to 2.5% in 2027 and 2.1% in 2028.
Officials have repeatedly stressed that the Governing Council is not committing itself to a predetermined rate path. Decisions will instead depend on incoming economic and financial data and the ECB’s assessment of the inflation outlook.
Why the inflation surge matters for Europe
Higher borrowing costs can affect mortgage holders, businesses seeking investment finance and governments refinancing public debt. They can also weaken consumer demand and investment if monetary conditions remain restrictive for an extended period.
At the same time, leaving rates too low while inflation remains elevated carries a different risk: higher prices could become more persistent and make returning inflation sustainably to the 2% target more difficult.
The challenge is particularly sensitive because energy costs have once again become a major source of European inflation.
What happens next for ECB interest rates?
The ECB’s Governing Council is scheduled to hold its next monetary policy meeting in Frankfurt on 28 and 29 October, with the rate decision due on 29 October.
Before then, Eurostat is scheduled to publish its full September inflation figures on 16 October, providing policymakers with a more detailed picture of price pressures across the euro area.
No October rate increase has been confirmed, and the ECB has not pre-committed to further tightening. However, September’s 3.8% inflation reading means the debate over another increase is likely to remain prominent as policymakers approach their next decision.
