Fresh fruit on display at a produce stall inside a covered market in central Madrid, Spain, on Wednesday, Aug. 30, 2023.
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Annual inflation in the euro zone reached its lowest level since October 2021, dropping to 4.3% in September, according to flash figures released on Friday.
Compared to the previous month, the annual inflation rate decreased from 5.2% in August to 4.3% in September, while the month-on-month inflation rate decreased from 0.5% to 0.3%.
The decrease in inflation was also evident in the core inflation rate, which excludes energy, food, alcohol, and tobacco. The core inflation rate fell from 5.3% in August to 4.5% in September.
This development follows the European Central Bank’s decision to increase interest rates to a record level in September, setting its key rate at 4%. Referred to as a “dovish hike,” the ECB’s governing council hinted that the rates might be high enough to bring inflation to its target in the medium term.
Based on the bank’s latest macroeconomic forecasts for the euro area, inflation is expected to average 5.6% this year, declining to 3.2% in 2024 and 2.1% in 2025.
Officials have downplayed expectations for future rate cuts. Francois Villeroy de Galhau, the Governor of the French central bank, stated that it would be premature to speculate on when the first cut will occur.
The economic outlook remains complex, with the ECB estimating a modest 0.7% economic growth for the euro zone this year, followed by 1% and 1.5% in the next two years.
The recent increase in oil prices poses a risk to the bank’s inflation forecasts.
Notably, inflation rates vary significantly among European nations. Germany, the largest economy in the euro zone, continues to experience inflation well above the target at 4.3%, alongside an economic contraction.
Estimates from Eurostat, the EU’s statistics agency, indicate that headline inflation, harmonized across euro zone nations, stood at 5.6% in France and 3.2% in Spain in September. Meanwhile, Slovakia and Slovenia grapple with inflation rates of 8.9% and 7.1%, respectively.
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