MediumIV Macro Policy & Sovereign Debt16 October 2026, Friday
Nagel keeps another ECB hike on the table as services inflation climbs
Eurostat confirmed on 16 October that euro area inflation stood at 3.8% in September; services inflation rose from 3.0% to 3.2%. Speaking in Bangkok the same day, Bundesbank President Nagel said the ECB could act again after 2 hikes if conditions persist.
According to Eurostat's final data, annual euro area inflation rose to 3.8% in September from 3.2% in August; a year earlier it had been 2.2%. Energy prices rose 18.9% year on year and alone contributed 1.71 points to the headline. Services inflation climbed to 3.2%, and its 1.52-point contribution brought it close to energy. Inflation excluding energy rose from 2.1% to 2.3%. The rate rose in 23 member states compared with August; Italy ended the month at 4.2%, France at 3.4% and Germany at 3.3%.
In Bangkok for the IMF and World Bank meetings, Nagel noted that the ECB had raised rates twice this year. He said he would not rule out a further step if the situation persisted. The deposit rate stands at 2.50% after quarter-point hikes in June and September. In a Reuters poll conducted on 5–8 October, 70 of 73 economists expected rates to be held on 29 October, and 64 expected a 25-basis-point hike in December.
In the same poll, 58% of economists expect the deposit rate to peak at 2.75%. The number who see the peak at 3.00% rose from 2 to 24 in a month. Economists raised their 2026 inflation forecast to 3.0% and their 2027 forecast to 2.6%. Markets took the data calmly: the STOXX 600 rose 0.7% on 16 October to 644.74 points, capping its best week since the end of June.
Talay assessment
Bottom line
The September data reinforce pricing for an ECB hold on 29 October and a third hike in December. The decisive item is not energy but services inflation climbing to 3.2%. That may signal the energy shock is starting to pass through into wages and service prices. Nagel's remarks keep alive the risk that the cycle does not end at 2.75%.
Likely effects
- Euro area bondsNegative1–6 months
The shift in expected peak rates from 2.75% to 3.00% keeps front-end yields elevated; if energy-driven inflation persists, the term premium will also rise.
- EuroUncertainWeeks
Expectations of a December hike lend the euro rate support, but with a Fed hike also priced for December, the rate differential changes little.
- TürkiyeNegative1–6 months
Higher euro area rates weaken demand in Turkish exporters' largest market and raise the cost of rolling over euro-denominated external debt.
Possibilities, ranked
- 1Hold in October, hike in December60%
The ECB holds at 2.50% on 29 October, raises by 25 basis points in December and signals a peak at 2.75%.
Watch: The direction of services in the 4 November flash inflation estimate relative to 3.2%
- 2Cycle extends to 3.00%25%
Services inflation keeps rising and the ECB signals one more hike with its December projections.
Watch: Whether the December projections put 2027 inflation above 2.6%
- 3December hike deferred15%
Energy prices retreat, services inflation cools and the ECB extends its pause.
Watch: A marked fall in annual energy inflation from 18.9%
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 services inflation▼ 3.2%
- STOXX 600▲ +0.7%
Sources
- Eurostat — Annual inflation up to 3.8% in the euro area
- FXStreet (Reuters poll) — ECB expected to pause in October before hiking rates in December
- GuruFocus — European Central Bank may raise rates again, says Joachim Nagel
- AOL (Reuters) — European shares close out best week since June as earnings soften blow from tech selloff