Three countries share one currency and one central bank rate, yet their inflation rates differ by more than twofold.
In September, annual inflation was 2.7% in Finland, 3.3% in Germany and 6.1% in Lithuania, according to Eurostat’s harmonised index (HICP), published in October. The euro-area average was 3.8%. All three face the same European Central Bank (ECB) deposit rate of 2.50%.
An energy shock felt unevenly
The common thread is energy. Eurostat data show energy prices across the euro area rose 18.9% in September, adding 1.71 percentage points to inflation, almost half the headline figure. Excluding energy, euro-area inflation was 2.3%.
How that shock plays out depends on a country’s energy mix, tax choices and the strength of its domestic economy.
Lithuania: energy, taxes and wages
Lithuania sits at the top of the range, and food is not the reason. Eurostat figures show food, alcohol and tobacco inflation at 0.5%, while energy prices jumped 33.0% and services inflation reached 6.9%.
The International Monetary Fund (IMF) attributes the surge to elevated energy prices amid continued import dependence, strong domestic demand and higher excise duties. Policy added to the pressure. From January, Lithuania raised the VAT on residential heating, hot water and firewood from 9% to 21%. The government’s draft budget estimated that the heating change alone would add 0.5 percentage points to inflation.
Pressure has spread beyond fuel and heating. Eurostat data put Lithuania’s core inflation, excluding energy, food, alcohol and tobacco, at 3.9%. The Bank of Lithuania expects average wages to rise 9.4% in 2026, and the European Commission links services inflation to strong pay growth and an 11.1% rise in the minimum wage.
Higher wages may leave many workers better off on average. But pensioners, benefit recipients and low-income households with large energy bills are more exposed. There is also a second-round risk. Labour-intensive service businesses can pass higher wages into prices, keeping inflation elevated after the energy shock fades.
Finland: cushioned and sluggish
Eurostat figures show Finland faced a similar energy shock, with energy inflation at 13.1%, yet headline inflation stayed at 2.7%. The European Commission says Finland’s relatively low reliance on fossil fuels softened the blow. Statistics Finland found that cheaper electricity and owner-occupied housing costs restrained its national consumer price index, even as petrol, diesel and heating oil pushed it up.
Domestic price pressure is weak. According to Eurostat, core inflation was 1.4% and services inflation 1.7%. The Bank of Finland forecasts 10.4% unemployment in 2026, while the Commission expects GDP growth of 0.8%. Statistics Finland reports nominal earnings rose 3.5% year on year in the third quarter, or 1.2% in real terms.
That combination helps explain why another rate rise may seem overly restrictive from Helsinki.
Germany: a spike concentrated in fuel
Germany falls in the middle. Eurostat data show energy inflation at 13.4% and core inflation at 2.5%. Germany’s statistics office, Destatis, found motor fuels up 37.1% and heating oil up 74.9% in the national index. Excluding those two items, inflation was 1.8%.
Wage pressure is moderate. Negotiated wages rose 2.9% year on year in August, and the Bundesbank projects the same average for 2026. Eurostat puts services inflation at 2.8%.
Policy also muddies the picture. Existing federal measures lowered electricity, gas and district-heating prices, and a new fuel-tax cut took effect on 1 October, so it is not included in September’s figures. National interventions can shift measured inflation monthly without changing the underlying European shock.
What a single rate means
The ECB raised its deposit rate from 2.25% to 2.50% in September, arguing that the Middle East conflict was keeping inflation above target and that the full effects of the energy shock had yet to emerge.
Subtracting national headline inflation from the ECB rate gives a rough real-rate proxy: minus 0.2% in Finland, minus 0.8% in Germany and minus 3.6% in Lithuania. This simple calculation based on ECB and Eurostat figures is not a true measure, since households and firms act on expected inflation and face different borrowing costs.
The policy tensions differ by country. Finland’s weak growth and high unemployment argue against tightening. In Germany, the rate is easier to defend given core inflation of 2.5%, but September’s acceleration was driven almost entirely by fuel and heating oil. In Lithuania, the rate looks loose against 6.1% inflation, though higher rates cannot reverse a VAT increase or lower imported fuel prices. They work by weakening demand and curbing second-round effects.
Transmission also varies. ECB research finds that policy works faster and more strongly where variable-rate debt and household leverage are more common, and Lithuania is among the countries relying on variable-rate mortgages with short reset periods.
Yet a recent study covering 2000 to 2025 suggests output and inflation responses to monetary policy are less uneven than often assumed, as some structural differences offset each other.
Sources: Eurostat, ECB, IMF, European Commission, Bank of Lithuania, Bank of Finland, Statistics Finland, Destatis, Bundesbank.