Italian inflation jumped to 5.4% in October from a year earlier, up sharply from 4.2% in September, as energy, food and transport prices pushed the rate well above the European Central Bank's 2% target, statistics agency Istat said on Friday, even as official data showed the eurozone economy growing 0.4% in the third quarter, beating expectations despite the Middle East war.
Eurozone gross domestic product expanded 0.4% in the July to September period, a slowdown from 0.6% in the second quarter but above the 0.2% forecast by economists surveyed by Bloomberg. Ireland's 5.5% growth skewed the bloc-wide figure; excluding Ireland, the euro area grew 0.2%, economists said.
The data come as eurozone inflation reached a three-year high of 3.8% in September, with the US-Israel war on Iran fuelling a surge in energy prices, and with Europe heading into winter, experts warned of challenges ahead. Economists said the single currency area's growth held up well but cautioned over the potential for stagflation, the combination of stagnant growth and high inflation.
'The eurozone economy seems to have shrugged off the Middle East crisis,' said Bert Colijn, chief economist at ING. 'Despite a worsening energy shock, the economy continues to be resilient.' He said European industry was benefiting from higher defence and infrastructure spending and the tech boom, but that steadily rising energy costs, including gas, would create 'an additional growth challenge' over winter.
Paolo Grignani, senior economist at Oxford Economics, said the data 'paint a mixed picture for the eurozone with stagflationary tendencies: GDP growth held up well, but national inflation releases surprised to the upside.'
Growth was uneven across the bloc. France, the eurozone's second-biggest economy, contracted 0.1% in the quarter, meaning it recorded no growth at all in 2026 and deepening concerns about its public finances and growing political tensions ahead of presidential elections next spring. French bond yields, which affect the cost of government borrowing, surged last week to their highest levels since 2002 amid a standoff over next year's budget. Germany, Europe's largest economy, grew 0.2%, beating expectations and following 0.3% growth in the second quarter. Italy recorded no growth in the third quarter, while Spain expanded 0.6%. Workers, students and activists demonstrated during a nationwide general strike called by grassroots unions to protest rising living costs, low wages and military spending.
Grignani said growth was 'becoming increasingly uneven across countries, with Germany and Spain gaining traction while France and Italy slow.'
Analysis
Why This Matters
- Italian inflation at 5.4% is well above the European Central Bank's 2% target, adding to pressures on household budgets as energy, food and transport costs rise.
- The eurozone's better-than-expected growth masks an uneven picture, and economists have flagged the risk of stagflation if growth stalls while inflation stays high.
- With winter approaching, further energy price increases could slow growth and push inflation higher, testing the resilience that has so far held up.
Background
The eurozone has been dealing with an energy price shock linked to the US-Israel war on Iran, which pushed eurozone inflation to a three-year high of 3.8% in September. The European Central Bank targets inflation of 2% across the currency area. The third-quarter growth figures show a bloc that has so far absorbed the shock, but with sharply diverging fortunes among its largest economies.
Key Perspectives
Bert Colijn, ING chief economist: says the eurozone economy seems to have shrugged off the Middle East crisis and remains resilient despite the worsening energy shock, though steadily rising energy costs will bring an additional growth challenge over winter.
Paolo Grignani, Oxford Economics senior economist: says the data paint a mixed picture with stagflationary tendencies, and that growth is becoming increasingly uneven, with Germany and Spain gaining traction while France and Italy slow.
Economists surveyed by Bloomberg: had expected the euro area to grow 0.2% in the third quarter, a forecast the 0.4% reading exceeded.
What to Watch
- Energy and gas prices through the winter: Colijn expects steadily rising costs to add a growth challenge, and any further inflation surprises would deepen the stagflation picture Grignani describes.
- France's budget standoff: bond yields hit their highest since 2002 last week, and the fiscal position will stay under scrutiny ahead of presidential elections next spring.
- The next round of eurozone data: whether Germany and Spain's momentum holds while France and Italy stagnate, and whether the bloc's GDP can avoid a contraction.
Checked
12 claims in this story checked against 1 source: 12 supported.
Show each claim
- SupportedItalian inflation surged to 5.4% in October.Euronews: “Italian inflation rose 5.4% in October from a year earlier, a sharp rise from the 4.2% rate in September”
- SupportedEurozone growth beat expectations in the third quarter.Euronews: “The figure was higher than the 0.2% predicted by economists surveyed by Bloomberg.”
- SupportedEconomists flagged a risk of stagflation in the eurozone.Euronews: “Economists said the single currency area's growth held up well but warned of the potential for stagflation”
- SupportedRising energy costs, including gas prices, would add a growth challenge over winter.Euronews: “Colijn said that "steadily" rising energy costs, including gas prices, means Europe "will see an additional growth challenge" in the winter.”
- SupportedItalian inflation was 5.4% year on year in October, up from 4.2% in September.Euronews: “Italian inflation rose 5.4% in October from a year earlier, a sharp rise from the 4.2% rate in September”
- SupportedEnergy, food and transport price rises pushed Italian inflation above the ECB's 2% target, Istat said.Euronews: “The increase, which was well above the European Central Bank's eurozone inflation target of 2%, was mainly due to rising energy, food and transport prices, the agency said.”
- SupportedEurozone GDP grew 0.4% in the third quarter.Euronews: “The EU's statistics agency said GDP across the 21-country euro area expanded by 0.4% in the third quarter”
- SupportedThe 0.2% forecast was from economists surveyed by Bloomberg.Euronews: “The figure was higher than the 0.2% predicted by economists surveyed by Bloomberg.”
- SupportedIreland's 5.5% growth skewed the bloc-wide figure; excluding Ireland, euro area growth was 0.2%, economists said.Euronews: “But Ireland's whopping 5.5% growth in the third quarter skewed the data, as economists said the euro area grew by 0.2% excluding Ireland.”
- SupportedBert Colijn said, “The eurozone economy seems to have shrugged off the Middle East crisis.”Euronews: “"The eurozone economy seems to have shrugged off the Middle East crisis," ING chief economist Bert Colijn said in a note.”
- SupportedBert Colijn said, “Despite a worsening energy shock, the economy continues to be resilient.”Euronews: “"Despite a worsening energy shock, the economy continues to be resilient."”
- SupportedPaolo Grignani said the data “paint a mixed picture for the eurozone with stagflationary tendencies: GDP growth held up well, but national inflation releases surprised to the upside”.Euronews: “Paolo Grignani, senior economist at Oxford Economics, said the data "paint a mixed picture for the eurozone with stagflationary tendencies: GDP growth held up well, but national inflation releases surprised to the upside".”
