Oct. 1 (UPI) — Inflation in the 20 European Union economies that use the euro slowed by 0.4% to 1.8% in September as an energy prices plunge that began in August gathered pace, according to official figures published Tuesday.
The annual pace at which prices of services; food, alcohol and tobacco; and non-industrial goods rose all held about level at 4%, 2.4% and 0.4%, respectively, but the speed at which energy prices were falling doubled to 6%, compared with 3% in August, Eurostat, the EU’s main statistical agency, said in flash estimates.
Core inflation, which strips out the price-volatile food, energy, alcohol and tobacco components, also remained steady, shaving just 0.1% from the August level to come in at 2.7%.
The figures take eurozone-wide inflation below the European Central Bank’s 2% target for the first time since June 2021 and its lowest level since April 2021, led by the outsized impact of Germany and France which together account for more than two-fifths of the euro area’s $19 trillion economy.
German inflation fell an estimated 0.2% to 1.8%, on an annual basis, and by 0.1% on a monthly basis while France’s annual inflation rate plunged an estimated 0.7% to 1.5% and by 1.2% on a monthly basis.
Inflation in Spain also fell below target, slowing to 1.7%, compared with 2.4% in August, along with Austria where the annual inflation rate fell to 1.8%, down from 2.4% in August, while Italy, Ireland, Slovenia, Luxembourg, Lithuania and Finland, where inflation was already below target, saw the pace of price rises slow further.
At the other end of the scale, inflation remained high in the Netherlands — unchanged at 3.3% — and rose to 4.5% in Belgium, 125% of the central bank’s target.
Capital Economics senior Europe economist Franziska Palmas said she expected the headline inflation figure to stay beneath 2% in the year ahead, despite the risk of a “temporary rebound” in coming months, adding that the September fall in inflation should be enough to convince the ECB to cut interest rates in October for the second straight month.
The ECB made a 25 basis point cut to the deposit rate on Sept. 12, bringing it to 3.5%, and 60 basis point cuts to the main refinance rate and marginal lending facility, bringing them down to 3.65% and 3.9% respectively.
ING’s Netherlands chief economist, Bert Colijn, expressed doubts inflation would pick up anytime soon given the rapid price falls of petrol driven by a declining oil price.
He said a rate cut was not guaranteed but believed the bank would be looking very closely at economic growth and the trajectory of inflation going forward.
“If it [the ECB] keeps interest rates restrictive for too long with the economy already slowing, it risks pushing inflation below its 2% target,” Colijn said.
“With growth under pressure now, it seems that the door is open for the ECB to move faster.”
The confidence of analysts and the market of an impending rate cut at the bank’s next monetary policy meeting on Oct. 17 was boosted by comments made by ECB President Christine Lagarde on Monday that policymakers’ belief that inflation would return to the 2% target was becoming stronger.
“Looking ahead, inflation might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates, but the latest developments strengthen our confidence that inflation will return to target in a timely manner,” Lagarde told a hearing at the European Parliament in Brussels.
“We will take that into account in our next monetary policy meeting in October.”
She said ECB projections saw inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, but stressed the bank would adhere strictly to its data-dependent approach to figuring out the correct level of rates, and for what time period, driven by the outlook for inflation, underlying inflation and how strongly monetary policy transmits through to the economy.
“Policy rates will be kept sufficiently restrictive for as long as necessary to achieve our aim. We are not pre-committing to a particular rate path,” said Lagarde.
CNBC said London Stock Exchange Group data indicated markets had priced in a 25-basis-point cut in October on the back of Tuesday’s inflation estimates.