The European Central Bank held its deposit rate at 2.50% on October 29, after debating whether to hike again. Eurozone inflation had hit 3.8% in September, a three-year high, as energy prices rose 18.9% on the Iran war.
Inflation excluding energy rose to 2.3% from 2.1%, and Lagarde said the council saw no material second-round effects yet. Money markets now price a 67% chance of a December hike. The average euro-area 10-year yield has risen about 35 basis points since the ECB's September projections, which Lagarde said would weigh on growth.
Why it matters
If inflation stays near 4%, the ECB's next move will keep mortgages and business loans costly into 2027.
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Key Indicators
3.49%
German 10-year yield
Germany's 10-year yield stood at 3.49% on October 8. Lagarde said average euro-area 10-year yields are up about 35 basis points since the ECB's September projections.
1.39
French spread over Germany (percentage points)
France's 10-year yield is 1.39 percentage points above Germany's, up from 0.87 at the start of September, reflecting fiscal stress.
20%
Bloomberg one-year euro-area recession probability
Bloomberg's one-year euro-area recession probability of 20% points to elevated rather than acute risk, per KBRA's Ken Egan.
2.50%
ECB deposit rate
The ECB held its deposit rate at 2.50% on October 29 after debating a hike.
14 events
Latest: October 29th, 2026 · 1 week ago
Showing 8 of 14
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October 2026
ECB holds rates at 2.5%
LatestPolicy decision
The Governing Council kept the deposit rate at 2.50% after debating a hike. Lagarde said the decision was unanimous and cited stable underlying inflation and higher long-term yields.
Bilello flags 56% spread between energy and consumer discretionary sectors
Market
Creative Planning's Charlie Bilello noted a 56-percentage-point performance gap between the S&P 500's energy and consumer discretionary sectors, saying war-driven inflation is rewarding big oil and squeezing consumers.
Iran tries to regain stranglehold on Hormuz shipping
Geopolitical
After more oil left the Gulf, Iran moved to reassert control over shipping through the Strait of Hormuz. Oil prices stayed above $100 a barrel as supply concerns persisted.
Bank of Spain raises 2026 inflation forecast to 3.9%
Forecast
The Bank of Spain lifted its 2026 inflation forecast to 3.9% and 2027 to 3.7%, warning prices could exceed 4% if Middle East tensions escalate. Energy inflation in Spain hit 22% in September.
Eurostat's Business Cycle Clock showed the eurozone in a sharp slowdown at the end of Q3, with Italy possibly already in recession and Germany and France facing downturns.
ECB's Dolenc says further hikes possible
Policy signal
Slovenian central bank chief Primoz Dolenc says upside inflation risks persist and the ECB may need to keep raising rates, though timing and size remain uncertain. He sees core inflation stable with no second-round wage effects yet.
Oil tops $100 after tanker attack off Qatar
Market
A tanker was attacked off Qatar, and oil prices climbed above $100 a barrel, adding to energy-driven inflation pressures.
Euro zone bond yields jump, French spread widens
Market
Yields rose again on energy price climbs, with France's 10-year yield near 4.93% and its spread over Germany at 142 basis points.
France releases strategic diesel reserves
Government
Prime Minister Sebastien Lecornu says France will release 10 million barrels from its strategic diesel reserves to ease cost-of-living pressures.
ECB's Lane calls energy shock 'mid-sized'
Policy signal
Chief Economist Philip Lane said the energy surge from the Middle East conflict warrants a measured response, not aggressive tightening. He cited contained spillovers, moderate wage deals, and no non-linear dynamics. Economists expect any final hike in December, lifting the deposit rate to 2.75%.
Eurozone inflation hits 3.8%, a three-year high
Data release
Eurostat confirmed September headline inflation at 3.8%, up from 3.2% in August and above the 3.6% forecast. Energy prices rose 18.8% year on year; core inflation rose to 2.5% from 2.4%.
September 2026
France, Germany, Italy inflation beat forecasts
Data release
France hit 3.4% (from 2.6%), Italy 4.1% (from 3.2%), Germany 3.3% (from 2.9%). Core inflation held at 2.4% for a third straight month. Energy inflation surprised on the upside in every country reported.
Spain inflation jumps to 5.0%
Data release
Spanish September inflation rose from 4.6% in August, the highest reading among the big four eurozone economies and above forecasts.
ECB raises deposit rate to 2.50%
Policy decision
Second hike of 2026, 25 basis points, citing inflationary pressure from the Middle East conflict and warning inflation would stay above target for an extended period.
Scenarios
1
ECB delivers surprise October hike
Deadline passed (Oct 30, 2026)
Discussed by: Markets price under 30% odds; Capital Economics says a move would not be a big surprise if energy prices keep climbing
The ECB raises the deposit rate to 2.75% at the October 29 Governing Council meeting, a back-to-back hike. It happens if oil and diesel prices rise further through October, pushing headline inflation worries ahead of the stable inflation excluding energy. Lagarde has leaned dovish, so this path requires new data — a jump in energy prices or an upside core surprise — to overcome her caution.
The ECB waits through October to see whether the energy shock produces second-round effects, then raises at its December meeting alongside fresh staff projections. Lagarde's September 28 comments — that rising long-term yields will slow growth and reduce energy pass-through — support patience. Allen-Reynolds at Capital Economics forecasts exactly this path.
3
Energy shock fades, ECB holds through year-end
Unlikely
Resolves by End of 2026
Discussed by: Lagarde's dovish tilt; MUFG's weakened conviction on tightening pace
Oil prices correct as Middle East tensions ease, and headline inflation falls back below 3% without another hike. Fennessy at Oxford Economics calls a correction unlikely, given winter approaches and no resolution is in sight. But Lagarde's measured stance and the stable inflation excluding energy keep the path possible if de-escalation comes.
4
Stagflation takes hold as growth slows and inflation stays high
Possible
Resolves by End of 2026
Discussed by: KBRA's Ken Egan, bond market signals
Bond markets are pricing in stagflation rather than recession: an economy losing momentum while inflation keeps climbing. This would leave the ECB with no good options — hiking further would squeeze indebted governments and a weakening economy, while pausing too early would risk entrenching inflation.
Historical Context
2 moments from history that rhyme with this story — and how they unfolded.
1 of 2
October 1973 - March 1974
1973-74 oil embargo
Arab oil-exporting countries embargoed the United States and allies over the Yom Kippur War, and oil prices roughly quadrupled to about $12 a barrel. Major central banks initially accommodated the supply shock rather than fight it.
Then
Inflation surged into double digits in the US and parts of Europe in 1974-75, followed by recession — the stagflation of the mid-1970s.
Now
The episode established that accommodating energy supply shocks lets inflation embed in wages and expectations, a lesson central banks cite decades later.
Why this matters now
Today's Iran war energy shock tests whether the ECB repeats the 1970s mistake or moves fast enough to keep inflation from embedding.
2 of 2
2022-2023
2022-23 European energy crisis
Russia's invasion of Ukraine sent European gas and power prices to records, and eurozone inflation peaked at 10.6% in October 2022. The ECB hiked its deposit rate from -0.5% to 4.00% over 2022-2023.
Then
Aggressive tightening brought inflation near target by late 2023, but slowed growth and raised borrowing costs sharply across the bloc.
Now
Established the ECB's playbook for energy-driven shocks: front-load hikes to stop second-round effects. It left the deposit rate at 4% for over a year.
Why this matters now
This is the direct template for the current episode — a smaller, diesel-led rerun where core inflation has so far stayed near 2.4%.
