Energy costs spark inflation surges in France, Italy

Inflation rates surged in France and Italy in September, driven by skyrocketing energy and fuel costs stemming from the Middle East conflict, official data revealed on Wednesday. The yearly inflation rate reached a record 3% in France, surpassing the previous high of 2.4% in August, according to the French statistics office, Insee.

In Italy, inflation leaped to 4.2%, nearly one percentage point higher than the 3.3% recorded in August, as reported by the Italian statistics agency, Istat. These staggering price increases far exceed the European Central Bank's 2% inflation target, heightening the chances of the ECB raising interest rates further. Diesel fuel costs, in particular, have reached record highs across France, Italy, Germany, and numerous other eurozone nations this week, a consequence of the Middle East war disrupting the flow of crude oil and refined fuels from the Gulf region.

This development has sparked expectations among analysts that the ECB may need to tighten monetary policy more aggressively in the coming months, potentially dampening economic growth in the eurozone. The central bank already increased its key rate to 2.5% earlier this month. Germany is set to release its inflation figures later Wednesday, preceding the complete eurozone data on Friday.

ING analysts stated that the French figures suggest inflation will likely stay above 3% through the end of 2026 before gradually easing in 2027. This persistent inflation will strain household spending power at a time when consumption is weakening, and rising interest rates are further exacerbating France's fiscal challenges. Consumer spending contracted by 0.5% in France in August, Insee also reported on Wednesday, while the country's public debt reached 119% of GDP in the second quarter, more than double the eurozone debt ceiling of 60%.