The sharp rise in oil and natural gas prices in September due to the ongoing blockade in Hormuz and attacks on Saudi infrastructure marked a significant growth in European IPCs, which also exceeded estimates in each of the four major European economies. In Germany, the pace of inflation acceleration was +0.6% month-on-month and +3.3% year-on-year after energy prices increased in September to nearly +15% compared to the 10.5% in October.
In turn, the French HICP also saw a significant jump, from 2.6% in August to +3.4% in September. This figure was not only higher than we anticipated but was also half a percentage point above the last forecast from the French statistics agency itself. Energy prices rose by +21.2%, compared to 16.7% in August, and it is worth mentioning that, unlike other European countries, France has not introduced widespread reductions in taxes or fuel prices, which has contributed to a greater transmission of crude oil prices. Beyond the noise generated by energy prices, the increase was also supported by the fact that service inflation rose by three tenths to 2.2%.
This week, it was also noted how prices are rising at different speeds, consolidating the advance of Spanish prices as the highest among the major eurozone economies. After prices advanced by six tenths from August to September, the Spanish CPI reached +5.0% in its harmonised reading (4.9% in the national). Although the preliminary reading still does not offer much detail, it confirmed what we had forecasted, namely that fuels were behind this strong surge. Although the rise in fuel prices has been similar in general terms for eurozone countries, the energy shock hit Spain when internal inflation or that dependent on services was at high levels, and, in fact, tourist packages were also a source of upward pressure in the September CPI.
Following Spain, Italy showed a quite striking price increase, rising by 2 percentage points from August to September, leaving the year-on-year reading at +4.1% (up from 3.2% in August). Energy inflation rose by more than 5 points to +22.3%, due to the sharp increase in prices for both regulated and unregulated components, with the increase in heating oil and electricity prices being more notable in the transalpine case compared to its peers, which we consider has caused such a significant rise in CPI figures from one month to the next. We also note that service inflation has also risen (albeit more gently, to +2.4% year-on-year), as we have seen in France and Spain.
Knowing that the general doubt lies in how high European inflation could rise, there are two particular questions we must consider for the upcoming readings. The first is whether service prices have risen solely due to base effects or if we are starting to see a trend where high energy prices begin to permeate. The second concerns gas prices. Unlike the transmission that is quite palpable in fuel prices, the increase in gas prices observed in the market around mid-September has not yet fully translated to the prices households pay and should continue to drive energy inflation in the coming months.
On the other side of the Atlantic, macro data also dominated the session, although in this case the evolution of prices left a better taste in the mouth, although we must clarify that the softer data also responded to the new methodology for three components of the index corresponding to software and computer accessories, portfolio management fees, and legal services. The core PCE barely rose a couple of tenths month-on-month, leaving the year-on-year note at +3.0% compared to the 3.3% predicted by Bloomberg consensus, while previous readings were revised downwards. For this reason, in annualised terms over three months, the core PCE inflation now sits at the Fed's 2% target in August, compared to over 3% before the revisions.
In this regard, the revaluation of the three components of PCE prices subtracted 36 basis points from the year-on-year inflation rate of the core PCE in July. And this is where the caveat lies, as the softer figure responds more to the new calculation method, leaving it to be seen whether this new methodology more accurately reflects the price changes affecting consumers. It was noted in the portfolio management subcategory, which had been one of the most revalued (over 20% year-on-year) and this change in methodology resulted in it experiencing the largest downward revision, settling at +8.6% year-on-year. Something similar happened with software prices and components related to information processing, which had also been a headache with over 20% revaluation, now settling at just over 15%.
What we also observed was that personal spending in August flexed its muscles again, growing by +0.9% month-on-month (and a solid +0.6% real) thanks to the recovery in spending on goods, in line with the good retail sales data we saw in August. The contrast came from personal incomes, which increased by only 0.2% (less than half of what we expected). This mainly reflected the increase in remuneration, led by wages and salaries (although wage growth is not exactly cause for celebration) as well as government social benefits, including Medicare and Social Security. As a result, the household savings rate fell half a percentage point to 4.1%. But it is worth clarifying that this drop came from a revised 4.6% in July after pointing out last month that this rate was only 3%, suggesting that this change indicates households are in a financially stronger position than previously estimated.
Regarding the latest revision of GDP for Q2 26, this upward revision of seven tenths to +2.2% quarter-on-quarter does resemble the good performance we saw in the breakdown by components in the preliminary readings. Household consumption advanced by +3.8% quarter-on-quarter (an upward revision of four tenths), surpassing expectations and well above the 0.5% of Q1 26. This improvement was more intensely observed in services (+3.4% quarter-on-quarter from 0.7% previously), which benefited greatly from the celebration of the World Cup. Spending on goods (+4.5% quarter-on-quarter) also experienced a notable surge thanks to spending on durable goods in the quarter, which grew by +7.4%.
As for business investment, it was significantly revised upwards reflecting the race to develop artificial intelligence infrastructures. The +4.6% was an increase of nearly two points from the preliminary reading. The performance of the technology sector has remained strong, with investment in equipment growing by over 13% quarter-on-quarter and growth in investment in intellectual property products at +9.2% quarter-on-quarter. Additionally, the recovery of residential investment, which was also revised upwards (+2.8% quarter-on-quarter from -7.8% in Q1 26), has come as a welcome relief for a sector that had seen four consecutive quarters of contraction and was under even more pressure from tightening financing conditions.