Inflation in the Eurozone provisionally reached 3.8 percent year-on-year in September. This represents the most significant increase since September of the previous year. According to preliminary estimates by Eurostat, consumer prices in the Eurozone rose from 3.2 percent in August to 3.8 percent, exceeding expectations. The main drivers of this development are primarily high energy prices, influenced by geopolitical conflicts and uncertainties in key shipping routes, which temporarily pushed Brent crude oil prices above USD 100 per barrel.
Germany is also experiencing a significant rise in consumer prices. According to preliminary figures from the Federal Statistical Office, the inflation rate in September increased to 3.3 percent year-on-year, thus exceeding the three percent mark for the first time since the end of the previous year. The fuel rebate, effective from 1 October, could slightly dampen inflation development until the end of the year, with economists predicting an effect of approximately 0.3 percentage points for October.
ECB and Fed Monetary Policy
The latest inflation figures have dampened expectations of a possible interest rate pause by the European Central Bank (ECB). Marco Schöfl, Director of Sales at Qualitypool GmbH, explains that beyond the overall rate, the acceleration in the cost of services, the slight increase in the core rate, and the passing on of energy costs by companies are significant. The ECB aims to prevent this entrenchment of inflation. The market currently assumes that the ECB will wait in October and potentially take further action in December.
The US Federal Reserve raised its key interest rate in September to a range of 3.75 to 4.00 percent, the first increase in three years. Although the decision was unanimous, the published meeting minutes show differing interpretations among policymakers regarding the future course. A majority expects another rate hike by the end of the year. A rate step in December is priced in with an 86 percent probability. Schöfl emphasises that despite the unanimous decision, the differing justifications suggest that the Fed has no fixed roadmap and that every new inflation and labour market figure can influence bond market yields and, consequently, construction interest rates in Germany.
Impact on Construction Financing
Best interest rates for construction financing have risen following the ECB's decision in September. Ten-year fixed rates increased from approximately 3.5 to 3.8 percent, while fifteen-year fixed rates saw a less pronounced increase from 4.1 to 4.2 percent. Marco Schöfl points out that the current environment, with two major central banks considering further rate hikes and consolidating inflation, does not suggest declining construction interest rates. He advises individuals planning to finance in the coming months or requiring follow-up financing not to wait, but to explore various scenarios and secure terms early, for example, via a forward loan. Longer fixed-rate periods offer planning security in this environment.
Potential relief could come from the fuel rebate in Germany in the fourth quarter or a de-escalation of conflicts in the Gulf, which would reduce pressure on energy prices and interest rate expectations. As long as these factors are not visible in the data, the upward risk for construction interest rates outweighs the chance of a decline.
- —Short-term: Upward to sideways, with continued high volatility.
- —Long-term: Tending to be somewhat higher, significantly influenced by the development of energy prices and the question of inflation entrenchment due to second-round effects.
