Eurozone inflation jumps to 3.8% as energy costs surge, deepening Europe’s fiscal strain

Eurozone inflation jumped to 3.8% in September, up from 3.2% in August and the highest in three years, driven largely by an 18.8% year-over-year surge in energy costs. France, Spain, Italy and Germany all posted notable increases, and the G7 responded by agreeing to release 100 million barrels of diesel and other fuels from strategic reserves over four months.

The pain is compounding with a bond market that Eurointelligence says had one of its worst months in years. French, German and Italian bond yields all climbed to multi-year or multi-decade highs, raising borrowing costs just as governments try to fund defense spending increases.

France remains the focal point: its deficit is projected to reach 5.4% of GDP in 2026 and public debt to climb to 121.7% of GDP by 2027, all against a backdrop of political gridlock ahead of next year's presidential election. Ten of the EU's 27 members now exceed the bloc's own debt rules, forcing austerity measures in countries including France, Italy, Poland, Belgium and Hungary.

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