Annual inflation in the euro zone rose to 3.8% in September, beating market expectations to hit its highest level since September 2023.

Last month’s print is up from the 3.2% recorded in August, above the 3.6% forecast by markets and well ahead of the European Central Bank’s 2% target. Core inflation came in at 2.5%, in line with expectations.

Energy inflation reached its highest level since January 2023, at 18.8%, as the ongoing Middle East conflict continues to drive prices higher.

Harry Woolman, global capital markets analyst at Validus Risk Management, said that while energy remains the main driver, September’s jump suggests it is now “more than an energy story” —making the next ECB meeting on Oct. 29 critical.

“Markets had pared back expectations of consecutive rate rises in recent days, after President Lagarde suggested that higher bond yields were doing some of the tightening for the ECB. Today’s inflation reading makes that argument harder to sustain,” Woolman said.

“A central bank mindful of the experience of 2022 will not want to wait for second-round effects to become entrenched before acting.”