CashNews.co
Inflation in the Eurozone has fallen further below the European Central Bank’s (ECB) target than previously anticipated as the central bank cut interest rates.
According to revised figures released by Eurostat, consumer prices rose by 1.7% in September, slightly lower than the initial estimate of 1.8%. This marks the first time since June 2021 that annual inflation has dropped below the 2% threshold, which the ECB views as optimal for price stability.
The ECB announced hours after the inflation figures came out that it was cutting interest rates, by 25 bps, for its third time this year.
The move lowers the rate that the ECB pays on banks’ deposits to 3.25%, and is the first back-to-back interest rate cut in 13 years.
Read more: FTSE 100 LIVE: European stocks rise and euro falls after ECB interest rate decision
Among member states, the lowest annual inflation rates were recorded in Ireland (0.0%), Lithuania (0.4%), Slovenia, and Italy (both at 0.7%). On the other hand, Romania (4.8%), Belgium (4.3%), and Poland (4.2%) reported the highest rates. Overall, annual inflation declined in 20 out of the 27 EU member states compared to August, remained stable in two, and increased in five.
In September, the highest contribution to the annual euro area inflation rate came from services, which accounted for +1.76 percentage points, followed by food, alcohol, and tobacco (+0.47 pp), non-energy industrial goods (+0.12 pp), while energy costs contributed negatively (-0.60 pp).
As inflation appears to be stabilising, the ECB’s attention has shifted towards addressing sluggish economic growth across the 20-nation eurozone. This shift comes after a period of aggressive interest rate hikes aimed at curbing soaring inflation, which peaked at 10.6% in October 2022 following the disruptions caused by the COVID-19 pandemic and Russia’s invasion of Ukraine.
The easing inflation rate in September has been attributed primarily to declining energy prices. However, economic growth in the eurozone has remained lacklustre in recent months. The ECB’s own forecasts indicate a slowdown to a modest 0.2% growth rate for the third quarter and an overall growth of only 0.8% for the entire year of 2024.
Read more: European Central Bank cuts interest rates for the third time this year
The lower-than-expected figure has added to the sense among policymakers that consumer prices are back under control after they soared in the wake of the coronavirus pandemic and the Russian invasion of Ukraine.
“Victory against inflation is in sight,” French central bank governor and ECB rate-setter Francois Villeroy de Galhau said last week.
Download the Yahoo Finance app, available for Apple and Android.