We are heading fast towards the #secularstagnation of the 2020s.
Told you so…Eurozone #inflation dips below target to 1.8% in September https://t.co/exr0kd5vCP via @ft #ECB
— Francesco Saraceno (@fsaraceno) October 1, 2024
Inflation in the eurozone fell to 1.8% in September, dropping below the European Central Bank’s 2% target for the first time in over three years. This development has strengthened expectations for faster interest rate cuts by the central bank. According to data released by Eurostat on Tuesday, the core inflation rate, which excludes volatile energy, food, alcohol, and tobacco prices, came in at 2.7%, slightly below forecasts and down from 2.8% in August.
Services inflation also eased to 4% in September from 4.1% the previous month. ECB President Christine Lagarde indicated that policymakers are growing more confident about inflation returning to the 2% target.
Eurozone headline inflation fell from 2.2% in August to 1.8% in September. Core edged lower from 2.8% to 2.7%.
The September numbers are consistent with the consensus forecasts.
Together with ECB President Lagarde comments, they cement the likelihood of a 25 bps cut in a couple… pic.twitter.com/zwjaZwS3Xn— Mohamed A. El-Erian (@elerianm) October 1, 2024
She mentioned the possibility of a temporary rebound in inflation during the fourth quarter but emphasized that the overall outlook reinforces their confidence in stabilizing inflation at the desired level.
Eurozone inflation slowed below #ECB's 2% target for the first time since June 2021. CPI rose 1.8% YoY in Sep, down from 2.2% in Aug as energy costs fell sharply. Core inflation eased to 2.7%. pic.twitter.com/DJSVLhtUTK
— Holger Zschaepitz (@Schuldensuehner) October 1, 2024
Eurozone inflation declines, ECB response anticipated
Lagarde stated that these developments will be taken into account during the ECB’s next monetary policy meeting on October 17. Economists from various institutions, including Capital Economics, ING, and Deutsche Bank, have revised their expectations for ECB rate cuts, with many now anticipating a 25-basis-point reduction in October.
Markets are betting on a 3rd #ECB rate cut in October, w/investors seeing a 91% chance after Germany's inflation fell <2% and Italy's CPI dropped <1%. pic.twitter.com/LIWbrpZhHW
— Holger Zschaepitz (@Schuldensuehner) September 30, 2024
Franziska Palmas, senior Europe economist at Capital Economics, suggested that the headline inflation falling below 2% could persuade the ECB to cut rates in October, despite elevated services inflation. Bert Colijn, chief economist for the Netherlands at ING, cautioned that maintaining restrictive interest rates for too long might push inflation further below the target, especially given the current pressure on economic growth. The recent inflation data represents a positive step towards stabilizing inflation within the eurozone.
However, careful considerations will be required for future monetary policy adjustments. The upcoming ECB meeting and subsequent decisions will play a crucial role in navigating the economic landscape and maintaining the inflation target.
