By country: Germany saw a significant decline, but Italy and Spain saw an increase.
Inflation in the euro zone has been declining over the past year after peaking at an annual rate of 10.6% last year.
Core inflation, which excludes volatile categories such as food and energy, is also considered a more reliable measure of underlying price pressures and has been easing recently. The rate was 4.5% in September, down from 5.3% in August.
In Germany, Europe's largest economy, annual inflation fell to 4.3% in September from 6.4% in August. One reason for the large decline is that the numbers are calculated on an annual basis. A year-long rail fare subsidy program that ended in June caused inflation to rise this past summer. This month, that impact was removed from the annual comparison.
France's inflation rate was 5.6, down from 5.7% last month. Italy's interest rate rose to 5.7% from 5.5% in August.
In Spain, which has had one of the lowest inflation rates in Europe this year, inflation rose for three consecutive months, hitting 3.2% in September. According to the country's National Statistics Office, this is due to rising electricity and fuel costs.
Croatia's inflation rate was 7.3%, the highest in the euro zone. The Netherlands fell into negative territory at -0.3%, but was the only country where prices were lower than a year ago.
Quote: An “accelerated decline” in inflation is expected.
“This is likely the beginning of an accelerated decline” in euro zone inflation, said Klaus Bystesen, chief euro zone economist at Pantheon Macroeconomics. He said inflation forecasts had to be revised downwards because of the latest data, adding that the European Central Bank's forecast for core inflation of 2.9% in 2024 was “a bullshit”.
Future developments: Interest rates are likely to remain high for some time.
Slowing inflation will raise expectations that the ECB may suspend its campaign for further rate hikes at its October meeting.but Rising interest rates, which are weighing on businesses and consumers, are unlikely to start coming down anytime soon. Central Bank President Christine Lagarde signaled this week that she would not cut interest rates until inflation was close to the central bank's 2% target.
“This is not something that can be measured in the short term,” Lagarde said of efforts to curb inflation. “It's a long race we're in.”
The bank raised deposit interest rates ten times in a row. The battle against lasso inflation continues this month. High interest rates make it more expensive to borrow money to expand your business or buy a new home, car, or refrigerator on credit. Additional costs will dampen demand but risk increasing unemployment.
High interest rates are hitting households with variable rate mortgages particularly hard, a group that accounts for around a third of mortgage holders in the European Union.
The European Commission reported on Thursday that consumer confidence fell for the second month in a row in September.
Some economists question what the right response is now to persistently rising prices. Inflation in Europe has been driven by a series of extraordinary shocks, including pandemic-related supply chain disruptions and soaring energy prices following Russia's invasion of Ukraine. It will take time for prices to fall again.
The latest Geneva Report on the World Economy by the nonpartisan network of economic researchers, released on Thursday, argues that central banks, particularly in the euro area, need to be more patient and give prices time to adjust. .
