Eurozone Inflation Fallen Below 2 Percent First Time Ever Since 2021
The annual Eurozone inflation has fallen below 2 per cent for the first time ever since that of 2021. It is the lowest level recorded in September based on the official data.
It has dropped below the European Central Bank target of 2 per cent that was set to fuel expectations of a better economy.
(Also read: House Prices Touch Approximately 9% Inflation Till June, Said CSO)
The apparent reason for this fall is the slowing down of year-on-year consumer prices to 1.8 per cent in September and falling energy costs, which were now below 2.2 per cent in August.
The inflation drop came sharply after a 6 per cent fall in energy prices in September. It is now compared with the 3 per cent drop in August as shown by Eurostat data.
The rate of Eurozone inflation was the lowest of the 20th century since April 2021. The predictions were beaten and were targeted for at least 1.9 per cent by the analysts. The analysts belonged to the financial data firm ‘Fact Set’.
The core indicators of the prices of tobacco, volatile energy, food and alcohol are the key indicators for ECB. These prices decreased to 2.7 per cent in September which was 2.8 per cent in the previous month, according to the EU’s official statistics agency.
The Eurozone economy grew hardly by 0.3 per cent in the second quarter which was raising eyebrows for many. The spending had decreased, more likely due to the Middle East and Ukraine wars, and potential layoffs.
Viewpoint of Central Bank’s chief on Eurozone inflation
The chief of the Central Bank Christine Lagarde said yesterday that the new data on inflation would be taken by the rate-setters “into account in our next monetary policy meeting in October”.
In recent months, the borrowing costs were cut twice by the Frankfurt-based body. Now, the current data will raise hopes for the future meeting scheduled for 17 October.
The current Eurozone inflation drop has changed the tables as several analysts were expecting the next cut in December.
The senior Europe economist at Capital Economics research group, Franziska Plamas said, “The latest figures should be sufficient to persuade the ECB to cut rates in October, even though services inflation remained high”.
Lagarde warned that this inflation drop should not be taken as a welcoming factor for smooth sailing of the economy in coming times. It might temporarily increase in the fourth quarter as the former drop in Eurozone inflation created a drop in the annual rates, he said.
The European Parliament has a confidence boost now after the situation regarding inflation. It was of the view that it had strengthened the economy and that “inflation will return to target in a timely manner”.
The ECB disclosed that the latest forecasts were expecting inflation to return to a stable of 2 per cent by the end of 2025 in the Eurozone.
An acceleration in the service industry has now slowed down to 4 per cent in September, which was 4.1 per cent in August.
Food and drinks were witnessing inflation at the rate of 2.4 per cent in September, which was 2.3 per cent in August.
Consumer prices fell below 2 per cent in the European Union’s two biggest economies, Germany and France, during September, which were 1.8 per cent and 1.5 per cent respectively.
Ireland experienced the lowest inflation rate of 0.2 per cent in September among all the other Eurozone regions, based on the data.
Economists have started to speculate about the banks’ cuts in the October 17 meeting. A few weeks ago, the economists were expecting the central bank to wait till the next meeting till the borrowing and lending rates should be set.
A quick cut strategy might be useful for the business and customer lending and borrowing but there would be concerns over the slow economic growth under which the banks’ own cuts would be questioned.
