Inflation in the Eurozone has fallen further below the European Central Bank’s (ECB) target than previously anticipated, solidifying expectations of interest rate cuts in the upcoming meeting on Thursday.
According to revised figures released by Eurostat, consumer prices rose by 1.7% in September, slightly lower than the initial estimate of 1.8%. This marks the first time since June 2021 that annual inflation has dropped below the 2% threshold, which the ECB views as optimal for price stability.
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Among member states, the lowest annual inflation rates were recorded in Ireland (0.0%), Lithuania (0.4%), Slovenia, and Italy (both at 0.7%). On the other hand, Romania (4.8%), Belgium (4.3%), and Poland (4.2%) reported the highest rates. Overall, annual inflation declined in 20 out of the 27 EU member states compared to August, remained stable in two, and increased in five.
In September, the highest contribution to the annual euro area inflation rate came from services, which accounted for +1.76 percentage points, followed by food, alcohol, and tobacco (+0.47 pp), non-energy industrial goods (+0.12 pp), while energy costs contributed negatively (-0.60 pp).
As inflation appears to be stabilising, the ECB’s attention has shifted towards addressing sluggish economic growth across the 20-nation eurozone. This shift comes after a period of aggressive interest rate hikes aimed at curbing soaring inflation, which peaked at 10.6% in October 2022 following the disruptions caused by the COVID-19 pandemic and Russia’s invasion of Ukraine.
So far this year, the ECB has implemented two rate cuts, with another expected during Thursday’s meeting in Slovenia, as the governing council convenes to discuss the economic landscape.
The easing inflation rate in September has been attributed primarily to declining energy prices. However, economic growth in the eurozone has remained lacklustre in recent months. The ECB’s own forecasts indicate a slowdown to a modest 0.2% growth rate for the third quarter and an overall growth of only 0.8% for the entire year of 2024.
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ECB president Christine Lagarde told European Union parliamentarians late last month that recent developments had strengthened the central bank’s “confidence that inflation will return to target in a timely manner.” This would be taken into account in October, she added.
The ECB will announce its decision on interest rates at 13:15 CET on Thursday.
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