INFLATION IN THE EUROZONE surged to its highest level in three years this month, in a surprise increase which will damage hopes that the European Central Bank could cut its interest rates.

The annual rate of inflation stood at 3.0 per cent in September, according to data published by Eurostat, up from 2.5 per cent in August.

By comparison, Ireland’s inflation stood at 2.2 per cent in August – but was only 1.0 per cent when measured by the harmonised European average methodology.

An increase in inflation had been anticipated, but the sheer scale of the increase is a surprise – and is a blow to struggling mortgage holders, who had hoped the European Central Bank might cut its rates soon.

An increase in German inflation was the main fuel behind the surprising spike – with Germany’s rate hitting 2.6 per cent last month, on the back of increased oil prices as a result of the Arab Spring.

The ECB has already increased its interest rates earlier this year, and had been expected to do so again this year – until the new wave of disappointing economic growth figures led to suggestions that the rate could be cut to try and boost credit flows.

The ECB’s stated aim is to try and keep inflation at around 2 per cent.

The continued increase of interest rates is almost always passed on by banks to mortgage customers – and takes immediate effect for more recent borrowers on tracker mortgages, whose rates are directly linked to the ECB rate.

Separate figures released today showed that unemployment in the 17-member Eurozone is at 10.0 per cent – another potential sign that the interest rates may not be lowered.

Ireland’s unemployment rate stood at at 14.4 per cent in August.