Eurostat's flash estimate topped forecasts as energy prices rose 18.8%. Core inflation edged up to 2.5%, keeping second-round effects on the ECB's agenda.
Consumer prices in the euro area rose 3.8% in September from a year earlier, Eurostat's flash estimate showed Friday, up from 3.2% in August and above the 3.6% economists had expected. Prices climbed 0.6% from the previous month.
Energy did the heavy lifting. Energy prices rose 18.8% from a year earlier, up from 14.3% in August and 10.3% in July. A year ago, the same category was falling.
Doing the decomposition
Energy carries a weight of about 9% in the index. At that weight, an 18.8% annual increase contributes roughly 1.7 percentage points to headline inflation, compared with about 1.3 points at August's pace. That shift alone accounts for around 0.4 points of the 0.6-point acceleration.
The remainder came from elsewhere, and that is where the policy debate sits. Services inflation, the largest component at nearly half the basket, rose to 3.2% from 3.0%. Food, alcohol and tobacco rose to 1.4% from 1.1%, with unprocessed food jumping to 4.0% from 2.7%. Core inflation, which excludes energy, food, alcohol and tobacco, ticked up to 2.5% from 2.4%.
The one category moving the other way was non-energy industrial goods, which eased to 1.1% from 1.2%, a sign that the energy shock has not yet seeped into manufactured goods prices.
Two ways to read it
The case for concern is breadth. Core and services both rose, and all four of the bloc's largest economies now run above 3%: Germany at 3.3%, France at 3.4%, Italy at 4.1% and Spain at 5.0%. European Central Bank President Christine Lagarde said Sept. 28 that the inflation surge "has yet to generate dangerous second-round effects." September's core and services readings are the first test of that claim since the ECB's latest rate increase.
The case for patience is that core rose by only 0.1 point and is no higher than it was in July, while services prices actually fell 0.7% on the month. If energy prices retreat, a large part of the headline acceleration could unwind. Brent crude fell below $100 a barrel overnight as European governments weighed a release of emergency stocks.
Currency markets took the figures in stride. The euro traded near $1.1247, little changed.
What to watch: Final September data on Oct. 16 and October's flash estimate on Nov. 4. If core inflation holds at 2.5% or higher while energy prices fall, the case that inflation is broadening becomes much harder to dismiss.