Inflation in the euro zone is further below the European Central Bank's (ECB) target than previously expected, solidifying hopes of a rate cut at Thursday's Governing Council meeting.
According to the revised figures released by Eurostat, the consumer price inflation rate in September was 1.7%, slightly lower than the initial estimate of 1.8%. This is the first time since June 2021 that annual inflation has fallen below 2%, the threshold that the ECB considers optimal for price stability.
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The lowest annual inflation rates among member states were Ireland (0.0%), Lithuania (0.4%), Slovenia and Italy (all 0.7%). Meanwhile, Romania (4.8%), Belgium (4.3%) and Poland (4.2%) reported the highest rates. Overall, annual inflation rates fell in 20 of the EU's 27 member states compared to August, remained stable in two and rose in five.
Services had the highest contribution to the euro area annual inflation rate in September by +1.76 points, followed by food, alcohol and tobacco (+0.47 points) and non-energy industrial products (+0.12 points), while energy costs contributed negatively (-0.60 pp).
With inflation appearing to be stabilizing, the ECB's focus has shifted to addressing the slowdown in economic growth across the 20 euro zone countries. The changes come after a period of aggressive rate hikes aimed at curbing a spike in inflation in the wake of the COVID-19 pandemic and disruptions caused by Russia's invasion of Ukraine, with inflation expected to rise by 2022 in October 2022. It reached 10.6% in January.
The ECB has cut interest rates twice so far this year, and another rate cut is expected at Thursday's Slovenian Governing Council meeting, when the Governing Council meets to discuss the economic situation.
The slowdown in inflation in September is believed to be mainly due to a decline in energy prices. However, economic growth in the euro area has remained lackluster in recent months. The ECB's own forecasts are for growth to slow slightly in the third quarter to 0.2%, and for the whole of 2024 to grow at just 0.8%.
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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 will be considered in October, she added.
The ECB is scheduled to announce its decision on interest rates at 13:15 CET on Thursday.
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