Energy lifted September readings in Germany, France, Italy and Spain on the same day U.S. measured inflation was revised lower. Forecasters expect Friday's euro-area figure to reach 3.6%.
The euro area's four largest economies all reported faster inflation this week. Energy accounted for nearly all of it.
Germany's EU-harmonized inflation rate climbed to 3.3% in September from 2.9% in a first estimate, a tenth above the 3.2% forecast. France's rose to 3.4% from 2.6%. Italy's reached 4.1% from 3.2%. Spain's, published Tuesday, rose to 5.0% from 4.6%.
German energy prices were up 14.9% from a year earlier, against 10.5% in August. Core inflation, which strips out volatile items like energy, held at 2.4% for a third straight month. In Germany, the entire acceleration came from outside the core.
Forecasters expect Friday's flash estimate for the whole euro area to show 3.6%, up from 3.2% in August.
Opposite directions
The European numbers landed on the same day as revised U.S. data put core PCE inflation at 3.0%, with July lowered to match. Measured inflation is rising with energy prices on one side of the Atlantic and was just revised down on the other.
The euro has not treated the European figures as a reason to rally. It traded near $1.1350 on Wednesday morning after slipping to about $1.1310 to $1.1320 on Tuesday, below its summer lows.
Bonds under strain
Bond markets in Europe are under the same pressure as Treasurys. Germany's 10-year yield is close to a 17-year high. France pays about 1.2 percentage points more than Germany to borrow for 10 years, at about 4.85% against 3.60%, a premium not seen since 2011, when the eurozone debt crisis was under way. The government presents its 2027 budget this week, alongside a debt-agency plan to borrow a record €340 billion next year.
Britain was a brighter spot. Revised figures showed the U.K. economy grew 0.5% in the three months to June and 1.4% from a year earlier, up from a first estimate of 1.2%. The pound rose about 0.5% to near $1.33.
Two readings
One reading is that energy costs will spread into the rest of the price basket, pushing the European Central Bank toward raising rates. That would narrow the policy gap with the Fed and support the euro over time.
The other reading is that an energy shock with a flat core acts as a tax on growth rather than the start of an inflation spiral. On that view, the euro's slide below its summer lows shows markets treating Europe's position as stagflationary rather than hawkish.
What to watch
Friday's euro-area flash estimate, against a 3.6% forecast, is the first test. A core rate that stays near Germany's 2.4% would support the energy-only reading. A rise in core, or ECB officials signaling an increase, would support the other.