Preliminary data released on Friday revealed that the annual inflation rate in the eurozone reached its lowest point since October 2021, registering at 4.3% in September. This marked a significant decline from the 5.2% rate recorded in August. Additionally, the month-on-month inflation rate saw a modest decrease from 0.5% to 0.3%.
Core inflation, a metric closely monitored by monetary policymakers, which excludes energy, food, alcohol, and tobacco, also saw a decline. It dropped from 5.3% in August to 4.5% year-on-year in September.
These numbers come in the wake of the European Central Bank’s (ECB) decision in September to raise interest rates to a record level, setting its key rate at 4%. This rate hike was characterized as a “dovish hike” by analysts, particularly due to the ECB’s indication that its governing council believes rates may already be at a sufficiently high level to eventually bring inflation back to its target in the medium term.
According to the ECB’s latest macroeconomic projections for the eurozone, inflation is expected to average 5.6% for the current year, with forecasts showing a decline to 3.2% in 2024 and further down to 2.1% in 2025. Policymakers have been cautious in managing expectations for potential rate cuts, with French central bank Governor Francois Villeroy de Galhau warning that it would be premature to predict when the first rate cut might occur.
The economic landscape remains complex, as the ECB anticipates meager economic growth of 0.7% for the eurozone in the current year, followed by 1% and 1.5% growth in the subsequent two years. Furthermore, the recent surge in oil prices poses a potential risk to the ECB’s inflation forecasts.
It’s worth noting that the inflationary situation varies widely among European nations. In Germany, the largest economy in the eurozone, annual price increases continue to exceed the target rate at 4.3%. Germany is also grappling with economic contraction.
Eurostat, the European Union’s statistics agency, reported that headline inflation in September was harmonized at 5.6% in France and 3.2% in Spain. Meanwhile, Slovakia and Slovenia are experiencing higher inflation rates of 8.9% and 7.1%, respectively.
