EU inflation is expected to jump over 10% after a new record in the UK

A rise in inflation in September brought the UK's CPI above 10%, as food prices continue to have a significant impact on household incomes and continue to put pressure on Prime Minister Liz Truss and the Bank of England.

Since the bond markets have been experiencing all sorts of ructions due to uncertainty over fiscal policy recently, the Bank of England could still be in a difficult position with core prices now at 6.3% and expected to increase further to 6.4% in the short term. This may shift their focus to be more aggressive in the short term. Although recent changes in the government's fiscal policy have likely made their lives easier, in the long run, they do not alter the short-term challenges that the central bank faces due to the current economic environment. As far as the UK bank is concerned, it is still far behind the curve and far behind the Federal Reserve, and with the Fed expected to raise rates by 75 basis points just one week before the next meeting of the Bank of England, markets are probably in for a tough time if interest rates are not going to climb up by at least the same amount, although recent wage increases are likely to also influence this decision.

Double-digit inflation is forecast for the EU

There are high expectations that the EU's September CPI would even worsen the already outrageously high numbers that were reported in August. After the previous reading of 9.1%, EU CPI for September is likely to rise by double digits for the first time in decades.

A major reason that EU CPI does not seem to be higher is that countries like France suppress the impact of CPI in their numbers by imposing price caps, while in Germany headline inflation, at 10.9%, has increased from 8.8% in August. Considering the fact that these numbers are expected to confirm later today and tomorrow, it is likely that the ECB will find themselves under even more pressure next week to push through with another 75bps hike when they meet.

An incredible 45.8% increase in factory gate prices in Germany was an indication that businesses are being forced to pass on price increases, which is a shocking fact. To put this in perspective, there has been a large mismatch between PPI and CPI numbers when it comes to headline inflation figures for the EU for several months now. The headline CPI numbers have been increasing at an accelerated rate despite all efforts from the central banks in recent months. With recent inflation numbers showing a surge of 1.2% month on month, headline inflation has risen to 10.2% and core inflation has risen from 4.3% to 4.8% since the last flash number.