Inflation in the euro zone fell to 3.6 per cent year-on-year in September as expected but it remained almost double the European Central Bank's target, making a near-term cut in interest rates unlikely.
The rise in consumer prices in the 15-country area slowed from August's 3.8 per cent annual growth and a peak of 4 per cent in July, the European Union statistics office said today.
Markets have been speculating that the freezing global money markets would force coordinated global central bank interest rate cuts to help restore confidence.
"Indeed, it is very noticeable that a number of senior ECB officials in recent days have stressed that upside risks to price stability persist and that anchoring price expectations are particularly important at a time of heightened instability."
The Eurostat estimate does not include a month-on-month figure or a detailed breakdown of inflation components, which will be made available on October 15th.
Economists said however, the slower price growth was mostly a result of a fall in oil prices, which declined to around $96 per barrel today from $147 at the July peak.
The ECB wants inflation to be just below 2 per cent over the medium term, but soaring oil and food prices have kept the gauge well above its target since September 2007.
Seeking to anchor inflation expectations and prevent a wage-price spiral, the ECB raised euro zone interest rates by 25 basis points to 4.25 per cent in July.
Yesterday, European Commission data showed inflation expectations peaked with oil prices in July and have been falling sharply since then.
Economists expect that this, along with a slowing euro zone economy and financial market turmoil, will pave the way for an ECB interest rate cut early in 2009, or even in late 2008.