Energy shock lifts inflation as policy rates stay unchanged
Euro area inflation rose to 3.8 percent in September 2026 as energy prices accelerated. The European Central Bank (ECB) kept its three policy rates unchanged, citing upside inflation risks and downside growth risks.
Energy rises faster than wages
On October 29, 2026, the Governing Council held the deposit facility, main refinancing and marginal lending rates at 2.50, 2.65 and 2.90 percent respectively.
September inflation rose from 3.2 percent in August to 3.8 percent, with energy inflation increasing from 14.3 to 18.9 percent.
Inflation excluding food and energy reached 2.5 percent, from 2.4 percent; services inflation rose from 3.0 to 3.2 percent.
Underlying price pressures remained broadly stable, with no material wage response to the energy shock so far.
Compensation per employee growth slowed from 3.6 percent in the first quarter to 3.3 percent in the second.
The ECB retained its medium-term 2 percent target and meeting-by-meeting approach, without committing to a rate path.
Growth meets tighter credit
Euro area GDP grew 0.6 percent in the second quarter of 2026.
A subsequent flash estimate put third-quarter growth at 0.4 percent, or 0.2 percent excluding Ireland; it was unavailable at the policy meeting.
AI investment and infrastructure and defence spending supported activity, while energy costs hurt confidence.
August unemployment was 6.4 percent.
Corporate borrowing rates were 3.8 percent and mortgage rates 3.6 percent in August.
Banks tightened corporate credit standards in the third quarter.
Asset purchase portfolios continued shrinking without reinvestment.
Persistence is the test
The ECB identifies the duration of the energy shock as a risk to broader prices and wages.
Tighter financing conditions also restrain demand, complicating the inflation and growth outlook.
Longer-term inflation expectations remain around 2 percent, but the Council stands ready to adjust its instruments.
Source: Economic Bulletin Issue 7, 2026
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