Euro-area flash inflation: Climbing higher

Euro-area inflation is rising mainly because of energy prices, but contained core inflation and limited second-round effects should keep the ECB from hiking in October.

• Headline inflation increased from 3.3% to 3.8% in September, above the 3.6% consensus forecast, while core inflation rose only from 2.4% to 2.5%, in line with expectations.
• Energy inflation accelerated from 14.3% to 18.8% and became the largest contributor to headline inflation; food inflation also rose to 1.4% from 1.1% in August.
• Services inflation increased to 3.2% from 3.0%, particularly in Italy and France, while non-energy industrial goods inflation edged down from 1.2% to 1.1%.
• Refinery margins have strengthened the transmission from oil prices to consumer fuel prices, making energy inflation harder to forecast amid uncertainty over Middle East tensions, oil production and Red Sea traffic.
• Core inflation has fluctuated little since early 2025, unemployment has stabilized at 6.4%, labour shortages have returned to pre-pandemic levels, and the ECB wage tracker was revised down for coming quarters.

Takeaway: Nordea expects the ECB to remain calm and maintain quarterly tightening, with rate hikes in December and March but not in October; however, a sudden decline in energy prices could push core-inflation risks to the downside.