Eurozone Inflation Falls Below ECB Target

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Inflation in the eurozone fell below the European Central Bank’s target in September for the first time in over three years, setting the stage for quicker interest rate cuts. The average inflation rate across the eurozone dropped to 1.8% in September, a decrease from 2.2% in August, based on data released on Tuesday. The region’s central bank, which determines interest rates for the 20 nations using the euro currency, aims for a 2 percent inflation rate, a target last reached in 2021.

With inflation now under the target rate and the eurozone economy facing challenges, investors anticipate that the central bank will accelerate its rate cuts. Financial markets indicate that the likelihood of policymakers cutting rates at their meeting this month surpassed 90 percent. Just a week ago, the probability was below two-thirds.

Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, stated in an analyst note, “With every data release, it is becoming increasingly clear that policy rates are too restrictive in the euro area.” He anticipates a quarter-point reduction at the upcoming meeting.

Eurozone inflation below target

The central bank had been stressing a prudent approach to lowering rates, aiming to avoid easing monetary policy too rapidly and reigniting inflationary pressures.

Policymakers reduced rates in June and maintained them at their subsequent meeting in July. There were indications that inflation remained persistent in certain sectors, especially in the services industry. Services inflation has been at or near 4 percent for the past five months.

Some analysts contend that these stubborn aspects of inflation will prompt policymakers to delay further rate cuts until December. On Monday, comments from European Central Bank president Christine Lagarde also bolstered expectations of a rate cut. During a hearing with a European Parliament committee, she said, “The latest developments strengthen our confidence that inflation will return to target in a timely manner.

We will take that into account in our next monetary policy meeting in October.”


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  • CNBC.”German inflation drops to 1.8% in September, below expectations”.
  • NYTimes.”Eurozone Inflation Slows to 1.8%, Bolstering Bets on Faster Rate Cuts”.
  • MarketWatch.”Treasurys rally as European Central Bank official points to need for an October rate cut”.

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