Eurozone inflation back below ECB target: first time in 3 years

Inflation in the Eurozone is back below the 2% target for the first time in three years. It is an important milestone, after a long, slow and painful run-up: at its worst, the price index had reached a peak of 10.6 % (October 2022), inflated by the flare-up in energy and food costs, in turn triggered by the invasion of Ukraine.

In September, according to Eurostat's preliminary estimate, inflation stood at 1.8 % year-on-year, compared to 2.2 % in August. The return below target comes as the Eurozone economy is heading towards stagnation and Germany's economy looks set to contract again in 2024, following the downturn in 2023.

The price slowdown was mainly due to a sharp drop in energy costs, down 6% year-on-year, following a 3% drop in August. Core inflation, which excludes energy, food and tobacco, slowed only marginally and remains at 2.7%, from 2.8% in August. Nor can increases in the coming months be ruled out. On the contrary, the ECB expects a rebound at the end of the year, even if only temporary.

The figure recorded by Eurostat reflects eve's forecasts, which were made on the basis of declines in Germany, Italy, France and Spain. And it reinforces the belief that the ECB may cut rates again at its 17 October meeting. President Christine Lagarde made this clear on Monday during a speech to the Europarliament, in which she said that confidence in the timely decline in prices had strengthened.

Inflation in the service sector, which had been of great concern to the ECB, also fell, albeit slightly: it stood at 4% in September from 4.1% in August and thus remains high. However, wage growth, one of the main drivers of service costs, has begun to slow down and the ECB's chief economist, Philip Lane, predicts that this trend will continue as workers' wages recover the loss of purchasing power experienced in recent years.