Euro zone inflation rose to 4% in October, its highest level in three years, driven mainly by energy costs. Core inflation held at 2.5%, and markets price a more than 72% chance of an ECB hike in December.
Euro zone inflation jumped to a three-year high of 4% in October, a flash estimate showed on Wednesday. The reading matched the expectations of economists polled by Reuters and rose from 3.8% in September.
Energy drives the increase while core inflation holds
Officials said the increase came largely from energy, where inflation rose to 20.8% from 18.9% in September. Energy prices rose 1.4% on the month, according to Investing.com.
Underlying pressure stayed steadier. Core CPI remained unchanged at 2.5% year on year. Services inflation edged up from 3.2% to 3.3%, ActionForex reported.
National readings diverged. Lithuania recorded the hottest rate at 6.1% while Malta's was the lowest at 2.3%, and every euro zone country stayed above the European Central Bank's 2% target.
Euro gains as ECB hike odds climb
The euro was up 0.6% against the U.S. dollar on Wednesday morning, while the greenback fell against a basket of major currencies as counting continued in the U.S. midterm elections.
The ECB kept its key interest rate at 2.5% last month, after a hike of 25 basis points in September. Before the data, markets priced a 71.8% chance of a rate hike at the ECB's final meeting of the year in December. After the release they priced more than 72%.
Robert Mertens of Validus Risk Management commented on the French bond market. According to CNBC: "ongoing turmoil in the French bond market is placing constraints on ECB policy", he said.
Sources: CNBC, Investing.com, ActionForex
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