Proof.
We will prove the lemma by induction on d = \dim (\mathcal{O}_{X, x}).
An uninteresting case is d = 1 since in that case the morphism f is étale at x by assumption. Assume d \geq 2.
We can base change by \mathop{\mathrm{Spec}}(\mathcal{O}_{Y, y}) \to Y without affecting the conclusion of the lemma, see Morphisms, Lemma 29.36.17. Thus we may assume Y = \mathop{\mathrm{Spec}}(A) where A is a regular local ring and y corresponds to the maximal ideal \mathfrak m of A.
Let x' \leadsto x be a specialization with x' \not= x. Then \mathcal{O}_{X, x'} is normal as a localization of \mathcal{O}_{X, x}. If x' is not a generic point of X, then 1 \leq \dim (\mathcal{O}_{X, x'}) < d and we conclude that f is étale at x' by induction hypothesis. Thus we may assume that f is étale at all points specializing to x. Since the set of points where f is étale is open in X (by definition) we may after replacing X by an open neighbourhood of x assume that f is étale away from \overline{\{ x\} }. In particular, we see that f is étale except at points lying over the closed point y \in Y = \mathop{\mathrm{Spec}}(A).
Let X' = X \times _{\mathop{\mathrm{Spec}}(A)} \mathop{\mathrm{Spec}}(A^\wedge ). Let x' \in X' be the unique point lying over x. By the above we see that X' is étale over \mathop{\mathrm{Spec}}(A^\wedge ) away from the closed fibre and hence X' is normal away from the closed fibre. Since X is normal we conclude that X' is normal by Resolution of Surfaces, Lemma 54.11.6. Then if we can show X' \to \mathop{\mathrm{Spec}}(A^\wedge ) is étale at x', then f is étale at x (by the aforementioned Morphisms, Lemma 29.36.17). Thus we may and do assume A is a regular complete local ring.
The case d = 2 now follows from Lemma 58.28.2.
Assume d > 2. Let t \in \mathfrak m, t \not\in \mathfrak m^2. Set Y_0 = \mathop{\mathrm{Spec}}(A/tA) and X_0 = X \times _ Y Y_0. Then X_0 \to Y_0 is étale away from the fibre over the closed point. Since d > 2 we have \dim (\mathcal{O}_{X_0, x}) = d - 1 is \geq 2. The normalization X_0' \to X_0 is surjective and finite (as we're working over a complete local ring and such rings are Nagata). Let x' \in X_0' be a point mapping to x. By induction hypothesis the morphism X'_0 \to Y is étale at x'. From the inclusions \kappa (y) \subset \kappa (x) \subset \kappa (x') we conclude that \kappa (x) is finite over \kappa (y). Hence x is a closed point of the fibre of X \to Y over y. But since x is also a generic point of this fibre, we conclude that f is quasi-finite at x and we reduce to the case of purity of branch locus, see Lemma 58.21.4.
\square
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