Fresh inflation figures from the eurozone's four largest economies published on Friday paint a divergent picture, with Italy recording the sharpest price surge while Germany saw a temporary reprieve. The data, covering October, offer an early glimpse of the pressures facing the European Central Bank as it prepares for its December meeting.
Italy: Energy shock drives prices to 5.4%
Italy's harmonised inflation reached 5.6% in October, up from 4.2% in September, according to preliminary data from Istat. The headline rate of 5.4% was well above the 4.6% economists had expected, returning to levels last seen in August 2023.
The main culprit was energy. Prices for energy goods rose 31.4% year-on-year, accelerating from 22.6% in September. Regulated energy tariffs, which are not set by the market, jumped 59.5% annually, more than double the previous month's rate, and climbed 18.8% in October alone.
The pressure is spreading to supermarket shelves. The so-called "shopping trolley" basket of frequently bought food, household, and personal care items rose 2.5%, up from 1.5%. Unprocessed food prices accelerated to 7.5%, and transport services to 3.1%. Core inflation, which excludes energy and fresh food, ticked up to 2% from 1.6%.
The timing is difficult for Italian households. Istat also reported that the economy stagnated in the third quarter. Melanie Debono, senior Europe economist at Pantheon Macroeconomics, noted that the detailed breakdown due next month is likely to show the energy shock weighed more heavily on consumer spending than monthly retail figures had suggested.
Spain: Inflation holds steady amid strong growth
Spain's inflation rate held at 4.9% in October, the same as September, according to a flash estimate from the National Statistics Institute (INE). That keeps it near its highest level since early 2023. Prices rose 0.6% from September, but the annual rate stayed flat largely because fuel was cheaper than a year earlier, when petrol and diesel were climbing. Higher gas tariffs offset part of that relief.
Underlying inflation, excluding energy and unprocessed food, held at 3.1%. The harmonised rate eased slightly to 4.9% from 5%. Spain remains the bloc's strongest large economy, with output growing 0.6% in the third quarter, supported by domestic demand, as Joe Nellis, head of economic research at advisory firm MHA, pointed out.
France: Stagflation worries intensify
In France, inflation rose to 3.4% from 3.1%, its highest since January 2024, according to Insee. Economists had expected 3.2%. Energy prices rose 24.1% year-on-year, accelerating for a fourth consecutive month, driven by gas and oil products. Services inflation, the largest component of the French basket, picked up to 2.7% as hotel and transport prices rose. On the harmonised measure, French inflation reached 3.8%.
The figures came alongside data showing the French economy shrank 0.1% in the third quarter. "France faces stagflation," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, in a report. He expects French harmonised inflation to rise above 4% by November.
Germany: Fuel tax cut provides temporary relief
Germany was the exception. Inflation dropped to 2.8% from 3.3%, below the 3% forecast, according to Destatis. The main reason was a cut in fuel taxes that took effect on 1 October and runs until the end of the year. Energy inflation slowed to 12.2% from 14.9%, and consumer prices fell 0.2% from September. Core inflation, excluding food and energy, eased to 2.1% from 2.4%.
Economists warn the relief may be short-lived. Vistesen wrote that energy inflation is likely to stay subdued through the end of the year, but snap back in January and February if fuel duties rise again. "The current German core inflation numbers look dovish, but this weakness won't last long," he said.
What this means for the eurozone and the ECB
Eurostat will publish its flash estimate for the entire currency bloc next week, and Friday's figures point to another uncomfortable reading. Before the Italian data, BofA Global Research expected eurozone inflation of 3.7% in October. After the Italian surprise, Pantheon raised its own forecast to 4%, up from 3.8% in September and twice the ECB's 2% target.
Paolo Grignani, senior economist at Oxford Economics, said the day's data paint "a mixed picture for the Eurozone with stagflationary tendencies." Energy is still doing the heavy lifting, he said, but there are "worrying signs of the energy shock spreading rapidly to stickier components." With eurozone growth holding at 0.4% in the third quarter, Oxford Economics expects the ECB to raise rates twice more.
The ECB kept its deposit rate at 2.5% on Thursday, after a hike in September. Christine Lagarde said policymakers had discussed another increase but agreed unanimously to wait. The December meeting will now be crucial, with markets pricing in a significant chance of a move. As the ECB's recent decision showed, the bank is treading carefully, but the latest data may force its hand.
