Inflation in the euro zone fell to its lowest level in two years in September, suggesting the European Central Bank’s steady diet of interest rate hikes was succeeding in curbing runaway prices albeit at a growing cost for economic growth.
Consumer prices in the 20 countries that share the euro rose by 4.3 per cent in September, the slowest pace since October 2021, from 5.2 per cent one month earlier, according to Eurostat’s flash reading published on Friday.
Inflation excluding food, energy, alcohol and tobacco – which is closely watched by the ECB as a better gauge of the underlying trend – fell to 4.5 per cent from 5.3 per cent, the biggest drop since August 2020.
These readings were likely to strengthen the ECB’s conviction that it had raised interest rates far enough to bring down inflation to its 2 per cent target by 2025, after being wrong-footed by a surge that started in 2021.
Price growth briefly hit double digits last autumn amid a combination of soaring energy costs, post-pandemic snags in supply chains and high government spending.
In response, the ECB lifted its key interest rate to a record-high of 4 per cent from a trough of minus 0.5 per cent in just over a year, turning off the money taps after a decade spent trying to stimulate inflation via an ultra-easy monetary policy.
The inflation drop was broad-based in September, with all categories growing at a slower pace and energy prices falling outright for a fifth consecutive month.
But the effect on the economy of the steepest tightening cycle in the ECB’s near 25-year history was becoming increasingly apparent, with some indicators pointing to a possible recession in the euro zone.
German retail sales unexpectedly fell in August, data showed earlier on Friday, and the euro zone’s biggest economy may be heading for its second recession this year.
Earlier this week, data showed headline inflation in the Republic is expected to have increased again in September as energy and food prices rose.
Prices in the economy, as measured by the harmonised index of consumer prices (HICP), grew by an estimated 5 per cent in the 12 months to September, up from 4.9 per cent in August. Prices grew 0.1 per cent in the month alone.
The estimates are subject to revision when the final results are published as part of the consumer price index release on October 12th. – Reuters