Energy costs spark inflation surges in France, Italy

Inflation rates soared in France and Italy in September due to surging energy and fuel costs stemming from the Middle East conflict, according to official data released on Wednesday. France's annual inflation rate reached a record 3%, the highest since February 2024, up from 2.4% in August. Italy's inflation rate jumped to 4.2%, nearly double the 3.3% rate in August, as reported by the Istat agency. These rates far exceed the European Central Bank's 2% target, increasing the probability of further interest rate hikes.

The extreme price increases, particularly in diesel fuel, are a direct result of the war in the Middle East disrupting the supply of crude oil and refined fuels from the Gulf. This has led analysts to anticipate that the ECB may need to implement more aggressive monetary tightening measures to curb inflation, which could negatively impact economic growth in the eurozone. The ECB already raised its benchmark interest rate to 2.5% earlier this month.

Germany is expected to release its inflation data later on Wednesday, followed by the comprehensive eurozone figures on Friday. Experts from ING believe that the French figures indicate inflation will stay above 3% throughout 2026, gradually easing in 2027. This prolonged high inflation is expected to erode household purchasing power during a period of weakening consumer spending and the impact of higher interest rates on France's fiscal challenges.

In August, French consumer spending declined by 0.5%, and the country's public debt reached 119% of GDP in the second quarter, more than double the eurozone's 60% limit.