Key Takeaways
- Eurozone headline inflation ticked up to 2.2% year over year in September, slightly below expectations.
- Core inflation rose 2.3% year over year in September, the same as the previous four months.
- The European Central Bank is unlikely to cut rates again in 2025.
Consumer prices in the eurozone increased by 2.2% year over year in September, according to Eurostat’s flash estimate, above August’s reading of 2.0% and slightly below expectations of a 2.3% rise.
Core inflation, which shows prices without volatile components such as energy and food costs, rose 2.3% year over year in September, as it did in the previous four months.
“Economists are pinning much of this on the rising prices of fuel, food and alcohol, but with core inflation just slightly above the headline number, this may not be telling the full story,” says Michael Field, chief European market strategist at Morningstar.
“Either way, this month’s rise is unlikely to trouble central bankers too much, with economists recently warning that inflation could actually fall below the central bank’s 2% target in 2026.”
What Is Driving Eurozone Inflation?
According to Eurostat’s estimates, services inflation had the highest annual rate in September at 3.2%, up from 3.1% in August. Food, alcohol and tobacco prices rose by 3.0% in September, compared with a 3.2% rise in the twelve months to August. Nonenergy industrial goods prices rose 0.8%, in line with August. Energy prices fell 0.4%, compared with a 2.0% fall in August.
“The picture may appear grimmer than it should,” says Riccardo Marcelli Fabiani, senior economist at Oxford Economics.
“Energy is typically volatile and hardly indicative of price pressures. The rise in services was influenced by the timing of the Paris Olympics, which means that the temporary downward drag on French services inflation has worn off. The outlook has not changed and still clearly points to inflation descending thanks to cooling wage growth, low energy commodity prices, a stronger euro, and contained demand-side pressures.”
The euro and stock markets were little changed following the data release.
According to Morningstar’s Field, “European equity markets have had a solid 2025 so far, despite the implementation of US tariffs and other shocks to the system.” He adds that “the macroeconomic backdrop has been supportive, and the benefit of low interest rates should be further supportive of stocks as we close out 2025.”
A Mixed Inflation Picture Across Eurozone Countries
The flash estimate of French headline HICP inflation in September was 1.1% year over year, below consensus forecasts, while Italian inflation came in at 1.8% year over year, slightly above expectations as energy inflation surprised to the upside.
Germany’s headline inflation surprised on the upside at 2.4% year over year. “Services CPI inflation increased to 3.4% year over year, above our expectations, and goods CPI inflation went up further to 1.4% year over year in September”, Goldman Sachs analysts wrote in a note. On the other side, Spanish inflation was at 3.0% in September, in line with consensus forecasts.
ECB Interest Rates: No More Cuts Expected in 2025
The next ECB monetary policy meeting will be held in Florence on Oct. 30, and economists don’t expect a rate cut after the central bank kept interest rates unchanged in the past two meetings. The ECB has cut rates eight times since 2024, taking the deposit facility rate to 2%.
“The obstacle to further rate cuts is significant,” says Martin Van Vliet, global macro strategist at Robeco. “With inflation close to target, the ECB Governing Council believes its policy is ‘well positioned’. The message was clear: It will take some kind of shock to convince the ECB to make further cuts. A gradual cooling inflation, as we expect, or a strengthening of the euro will probably not be enough to sway the ECB.”
