Euro zone inflation falls to 2.7% in September

Euro zone inflation fell to 2.7% in September, below the European Central Bank’s target. Preliminary data from Eurostat showed the decline, which came in below the target of 2%. The report was in line with expectations from economists polled by Reuters earlier. Core inflation, which excludes energy, food, alcohol and tobacco, came in at 2.7%, slightly below expectations.

Euro zone inflation fell to 1.8% in September, below the European Central Bank’s target of 2%, Eurostat data showed. The reading was in line with expectations from economists polled by Reuters, after annual inflation hit a three-year low of 2.2% in August. Core inflation was 2.7%, and was expected to remain unchanged from August’s 2.8%.

Services inflation fell to 4% in September, from 4.1% in August. The figures reflect inflation falling below target in several major eurozone economies.

such as France and Germany, where inflation in the largest economy fell more than expected to 1.8% annually. Franziska Palmas, an economist at Capital Economics.

expected a “tentative rebound” in inflation in the coming months, but the headline reading would remain below 2% next year.

Bert Colijn, ING’s chief economist for the Netherlands, noted that a renewed rise in inflation was also not certain. In a note, he said that while a rebound was expected in the fourth quarter, the question was how much would happen as gasoline prices fell rapidly as oil prices fell.

According to preliminary data from the European statistics agency Eurostat. The reading was in line with expectations of economists polled by Reuters.

Next steps for the European Central Bank

European Central Bank President Christine Lagarde said on Monday that policymakers were becoming more confident about inflation returning to the 2% target. “Looking ahead, inflation may rise temporarily in the fourth quarter of this year as the previous sharp declines in energy prices are offset by annual rates, but recent developments reinforce our confidence that inflation will return to target in due course,” she said during a hearing of the European Parliament’s Economic and Monetary Affairs Committee. “We will take this into account at our next monetary policy meeting in October,” Lagarde added. The ECB is due to meet on Oct. 17.

Palmas said on Tuesday that a fall in headline inflation below 2% “should be enough to convince the ECB to cut interest rates in October,” even as the services inflation reading remains high. ING’s Collin added that economic growth and inflation falling significantly below the 2% target are two points the ECB should consider. “If the ECB keeps interest rates on hold for a prolonged period with the economy already slowing.

it risks pushing inflation below its 2% target,” he said. With growth now under pressure.

the door appears open for the ECB to move faster,” he said, noting that a rate cut has not yet been “decided.” Bank of America Global Research economists revised their forecasts for the ECB’s likely path to rate cuts following her comments.

now expecting a rate cut in October. Economists had previously expected the central bank to keep rates steady this month.

Germany’s harmonized CPI has been below 2% since February

But they now say Lagarde’s comments “are the same justification she used for cutting rates in September,” suggesting “a near-certain possibility of a rate cut in October.” Deutsche Bank economists on Tuesday raised their forecast for the next ECB rate cut from December to October. Markets were widely expecting a 25 basis point rate cut in October, data from the London Stock Exchange showed, following the release of the latest euro zone inflation data on Tuesday.

Preliminary data from Germany’s statistics office showed the harmonized consumer price index fell to 1.8% in September, below expectations. The index had been forecast to come in at 1.9%, according to a Reuters poll. In August, the index unexpectedly fell to 2%. On a monthly basis, the index fell 0.1%, while Reuters had expected the monthly reading to be unchanged.

The LSEG data shows that Germany’s harmonized consumer price index has been below 2% since February 2021, the ECB’s inflation target. Core inflation, which excludes food and energy costs, was 2.7% in September,  went down slightly from 2.8% in August. Services inflation also eased to 3.8% after holding steady at 3.9%. The data also showed energy costs fell 7.6% in September. the  Deutsche Bank economist Sebastian Becker said inflation could rise again by the end of the year due to base effects. “The inflation problem is not completely solved, so the core rate is likely to ease significantly,” he said. Wage pressures meant that both core and services inflation would ease slowly, he said.

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