MediumIV Macro Policy & Sovereign Debt4 November 2026, Wednesday
Euro-area inflation rises to 4% in October as core holds steady
According to Eurostat's flash estimate on 4 November, annual euro-area inflation rose from 3.8% in September to 4.0% in October. Energy inflation climbed to 20.8%, while the core rate reported by Xinhua held at 2.5%.
Energy drove the increase. According to Eurostat, energy prices rose from 18.9% to 20.8% year on year, up 1.4% on the month. Services inflation edged up from 3.2% to 3.3%, food, alcohol and tobacco from 1.3% to 1.6%, and non-energy industrial goods from 1.1% to 1.2%. The headline rose 0.4% month on month. According to Xinhua, China's state news agency, core inflation excluding energy and food held at 2.5%.
Divergence across countries widened. Inflation rose from 4.2% to 5.6% in Italy, from 4.5% to 5.2% in Belgium and from 3.4% to 3.8% in France. In Germany it fell from 3.3% to 2.8%, down 0.1% on the month. The highest rate was in Lithuania at 6.1% and the lowest in Malta at 2.3%.
The release is the first of 2 flash estimates due before the ECB's December meeting. According to Xinhua, the ECB's Survey of Professional Forecasters raised its 2027 inflation expectation by 0.4 points to 2.6%.
Talay assessment
Bottom line
The rise in the headline to 4% comes largely from energy; core holding at 2.5% shows that second-round effects have yet to spread. This strengthens the case for the ECB to deliver a December hike as a credibility move against the peak. The real risk is managing, with a single policy rate, a gap between Italy and Germany that has widened to 2.8 points.
Likely effects
- ECB rate pathNegativeWeeks
The headline at 4.0% raises the odds of a deposit rate increase in December; core steady at 2.5% limits the case for consecutive moves.
- Periphery debtNegative1–6 months
Inflation of 5.6% in Italy erodes real incomes, while a rate rise lifts borrowing costs faster than in Germany.
- TürkiyeNegative1–6 months
Energy inflation of 20.8% in the euro area squeezes household demand, weakening demand for consumer goods in Türkiye's main export market.
Possibilities, ranked
- 1One hike in December60%
The November flash comes in at 3.8–4.1%, and the ECB raises rates by 25 basis points in December before pausing.
Watch: The November flash HICP in early December and the December ECB decision
- 2Consecutive tightening25%
Services inflation rises above 3.3%, core picks up and the ECB keeps the door open for January or March.
Watch: Core inflation rising above 2.5%
- 3Energy retreats, ECB waits15%
The fall in oil proves durable, November inflation drops below 3.5% and the ECB holds in December.
Watch: November flash energy inflation falling below 15%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Euro-area HICP▲ 4.0%
- Energy inflation▲ 20.8%
- Italy HICP▲ 5.6%