BRUSSELS: Eurozone inflation fell to an almost two-year low in September, official data showed Friday, raising hopes that the European Central Bank will end its rate-hiking cycle.
The ECB has increased rates repeatedly to tame red-hot inflation, but the pain is being felt across the eurozone economy.
Consumer prices in the 20-nation single currency bloc rose by an annual rate of 4.3 per cent, according to data published by Eurostat, down from 5.2 per cent in August.
It is the lowest since October 2021.
The figure beat a consensus forecast by analysts compiled by financial data firm FactSet which said inflation would slow to 4.5 per cent in September.
But inflation remains well above the ECB’s two-per cent target.
Friday’s data will spur hopes among investors that the ECB will pause its rate-hiking cycle, as the eurozone economy weakens and concerns mount about the burden on households and businesses from higher borrowing costs.
Core inflation, which strips out volatile energy, food, alcohol and tobacco prices, also slowed in September, to 4.5 per cent from 5.3 per cent in August.
Core inflation is the key signal for the ECB.
“September’s sharp drop in eurozone inflation was largely due to base effects, but core inflation also came in below expectations. This reinforces our view that the ECB has finished raising interest rates,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.
But he predicted any rate cuts will likely not come until late 2024.
ECB chief Christine Lagarde said Monday that she recognised the “pain” of the aggressive rate hikes but insisted they were necessary to tame inflation.
European governments, including France, have raised opposition to any further rate rises.
France’s central bank governor Francois Villeroy de Galhau said Friday that the drop in core inflation “confirms that our current benchmark rates are appropriate” for the inflation fight.
In a video posted on LinkedIn, Villeroy de Galhau said he was confident that eurozone inflation would return toward the ECB’s two-per cent target by 2025.
Inflation has steadily fallen since it reached a peak of 10.6 per cent in October 2022 following the devastating effects of Russia’s war on Ukraine across Europe.
Economists warned, however, against expecting inflation to fall further enough to hit the ECB’s target.
“Higher energy and wage costs do keep the risk alive that inflation could remain above target for longer than hoped,” said ING’s senior eurozone economist, Bert Colijn.
He pointed to the recent advance in oil prices and said he expected that “this will mainly push eurozone inflation higher at the start of next year”.
Energy prices in the eurozone, however, dipped further in September, falling by 4.7 per cent on the back of a drop of 3.3 per cent the previous month.
The rise in food and drink prices also slowed down, reaching 8.8 per cent in September compared with 9.7 per cent in August, according to Eurostat. The Netherlands was the only country where consumer prices fell by 0.3 per cent, according to Eurostat figures.
Germany, Europe’s biggest economy, performed better than previous months, with inflation slowing down to 4.3 per cent in September from 6.4 per cent in August, Eurostat data showed. – AFP
