Euro zone inflation climbed to 4% in October, reaching its highest level in three years. Rising food and energy costs have strengthened expectations of another European Central Bank (ECB) rate increase in December.

Data released by Eurostat on Wednesday showed that the rate increased from 3.8% in September. The latest figure matched economists’ expectations in a Reuters poll.

Energy prices recorded the sharpest increase, with energy inflation reaching 20%. However, core inflation, which excludes food and energy prices, remained steady at 2.5%.

The ECB aims to keep inflation across the region close to 2%. However, rising energy costs have pushed prices further above that target.

Euro Zone Inflation Raises Rate Hike Expectations

The increase has strengthened expectations of another ECB rate hike. Several policymakers have already indicated that a December increase is likely.

The central bank kept interest rates unchanged at its previous meeting. However, concerns remain that higher energy costs could spread across the European economy.

Economists warn that prolonged increases in energy prices could create wider inflation pressures. Nicola Nobile of Oxford Economics said the latest figures added to the case for a December rate increase.

Financial markets are currently pricing in between two and three increases to the ECB’s 2.5% deposit rate over the coming year. Expectations continue to change alongside movements in oil prices.

Food Prices Add to Inflation Concerns

Food prices are also contributing to rising inflation across the euro zone.

Non-processed food prices rose 4.6% compared with the same period last year. These include frequently purchased household items, which can influence how consumers view rising living costs.

Services inflation also increased slightly, moving from 3.2% to 3.3%. Industrial goods prices rose to 1.2%, compared with 1.1% the previous month.

Although core inflation remains stable, economists warn that higher energy costs could eventually affect other goods and services.

Inflation Expected to Remain High

The ECB expects inflation to remain above 4% for much of the first half of 2027. It then expects prices to fall towards the low 2% range.

Low natural gas storage levels could also increase heating costs in the coming months.

Meanwhile, Sweden’s central bank raised interest rates on Wednesday and indicated that further increases may follow. The Bank of England was also expected to raise its key rate on Thursday as inflation concerns continued.