Euro inflation rises to 4.1%, hitting a new 13-year high in October

Euro zone inflation hit a new 13-year high in October, as the currency bloc battles surging energy costs, adding to the European Central Bank’s challenge in battling increasingly aggressive market bets for interest-rate hikes.

Consumer prices rose 4.1 per cent in October, compared with the median of economist estimates at 3.7 per cent, according to figures released by Eurostat on Friday. A measure stripping out volatile components such as food and energy climbed to 2.1 per cent, a rate not seen in nearly two decades. 

On the eve of the data, ECB President Christine Lagarde attempted to push back on investor bets that her institution will have to raise interest rates next year, declaring such pricing at odds with its own analysis and policy guidance.  On the eve of the data, ECB President Christine Lagarde attempted to push back on investor bets that her institution will have to raise interest rates next year, declaring such pricing at odds with its own analysis and policy guidance. 

That left investors unimpressed. On Friday, they started to price in 20-basis points of rate hikes by October 2022, even sooner than before Lagarde tried to convince them that their expectations are off the mark. “Without a doubt, investors have a different take on inflation to the ECB,” said Rishi Mishra, an analyst at Futures First.

Lagarde acknowledged that faster price increases will stick around for longer than the ECB previously anticipated, but also stuck to the view that it will ease through 2022. Her attempt to counter investor speculation stopped short of saying markets are wrong to bet on rate hikes next year. That reflected an agreement among Governing Council members that such a move could backfire, officials familiar with the matter said.