Italy's inflation rose to 4.1%, above the 3.8% forecast

Italy’s harmonized inflation, the measure the European Central Bank watches, rose to 4.1% in September, the highest in three years.

The reading, still preliminary, was above the 3.8% median forecast from 17 analysts. ISTAT, Italy’s statistics agency, said the faster pace came mainly from energy.

Regulated energy prices rose 25.9% from a year earlier, up from 18.6% in August, and 5.9% on the month. Non-regulated energy, which includes motor fuel, rose to 22.2% on the year from 17.0%, and 4.4% on the month.

Unprocessed food rose to 5.5% from 3.8%, but core inflation, which leaves out energy and unprocessed food, rose only to 1.6% from 1.4%. On the national index, inflation rose to 4.2% from 3.3%.

The rise comes as Prime Minister Giorgia Meloni tries to curb energy costs for families and firms, amid public discontent over the cost of living and a national election due next year.

Spain and France rose too

Spain’s statistics office estimated harmonized inflation at 5.0% on Tuesday, up from 4.6% in August. It traced the rise to fuel prices that rose this September after falling a year earlier.

France’s statistics office estimated 3.4%, up from 2.6% and above the 3.1% economists had expected, on higher prices for fuel and gas.

Germany’s statistics office is due to publish its national estimate today. Eurostat publishes the figure for the whole euro area on Friday, October 2.

The next rate decision is still open

On September 10 the ECB raised its deposit rate, its main policy rate, to 2.50% from 2.25%, and said it was not tying itself to a path for rates. The conflict in the Middle East was still adding to inflation, it said, and inflation was set to remain well above the 2% target for an extended period.

Markets expect four more rate increases over the next year, after the two already made in June and on September 10.

Its September projections put euro-area inflation at 3.3% in the third quarter and 3.6% in the fourth. In an interview conducted on September 16, ECB Vice-President Boris Vujčić said energy prices had continued to rise, and that this was already clear when rate-setters met, after the projections were finished.

“The pricing of the interest rate path is being driven mainly by rising energy prices,” he said.

“With very few signs of a resolution of tensions in the Middle East on the horizon and winter approaching, a correction in energy prices is unlikely any time soon,” said Rory Fennessy, senior European economist at Oxford Economics.

He added that core inflation has not moved up much this year, but could rise into early 2027 if energy prices stay high.

Economists expect Friday’s euro-area figure at 3.6%, up from 3.2% in August. A month at that pace would already match the 3.6% the ECB projected for the whole fourth quarter, against 3.3% for the third quarter.

They see a peak closer to 4%, and say current energy prices sit closer to the bank’s adverse scenario, which has inflation at 4.0% in the fourth quarter and the first quarter of 2027.

The ECB decides on Thursday, October 29.