Tourists pass shops on a pedestrian street in the old town of A Coruña, Spain, Thursday, September 26, 2024.
Manaure Quintero | Bloomberg | Getty Images
Preliminary data released by Eurostat on Tuesday showed that euro zone inflation fell to 1.8% in September, below the European Central Bank’s 2% target.
The data was in line with expectations of economists polled by Reuters, after inflation hit a three-year low of 2.2% last year. August.
Core inflation, which excludes volatile energy, food, alcohol and tobacco prices, was 2.7%. It is expected to be unchanged from August’s 2.8%.
Data show that the Eurozone services sector inflation rate fell to 4% in September from 4.1% in August.
The data came after inflation in several major euro zone economies, including France and Germany, fell below the ECB’s 2% target in September. Unified inflation rate for major European economies Preliminary data on Monday showed an annual decline of 1.8%, beating expectations.
Inflation outlook
Franziska Palmas, senior European economist at Capital Economics, said in a note on Tuesday that while there may be a “temporary rebound” in inflation in the coming months, the The overall inflation rate in 2020 is likely to remain below 2%.
Bert Colijn, chief economist at ING Netherlands, also pointed out that it is not entirely certain that inflation will pick up again.
“While a rebound is expected in the fourth quarter, the question is how far that rebound will materialize as oil prices fall and gasoline prices fall rapidly,” he said in a note on Tuesday.
European Central Bank’s next steps
European Central Bank President Christine Lagarde said on Monday that policymakers are increasingly confident that inflation will return to the 2% target.
“Looking ahead, inflation is likely to rise temporarily in the fourth quarter of this year due to previous sharp falls in energy prices that have exceeded the annual rate, but the latest developments strengthen our confidence that inflation will return to target in time,” she said. said at the hearing Member of the Economic and Monetary Affairs Committee of the European Parliament.
“We will take this into consideration at our next monetary policy meeting in October,” Lagarde added. The next ECB meeting will be held on October 17.
Capital Economics’ Palmas said on Tuesday that while services sector inflation data remained high, a drop in headline inflation below 2% “should be enough to convince the European Central Bank to cut interest rates in October.”
ING’s Colijn added that economic growth and an inflation target of well below 2% are two considerations for the ECB.
“If (the European Central Bank) maintains interest rate restraints for too long in an already slowing economy, it risks pushing inflation below the 2% target. With economic growth now under pressure, the ECB is stepping up action. The door appears to be open,” he said, noting that a rate cut is not “a certainty” yet.
Following her comments, BofA Global Research economists changed their outlook on the prospects for an ECB rate cut, noting that they now expect a rate cut in October.
Economists had previously predicted the central bank would keep interest rates steady this month, but now said Lagarde’s comments were “the same rationale she used when she cut rates in September” and suggested “a quasi-definite move will be made in October.” ‘”.
Deutsche Bank economists on Tuesday also raised their forecast for the European Central Bank’s next rate cut to October from December.
Data from the London Stock Exchange showed that following the release of the latest euro zone inflation data on Tuesday, the market is generally expected to cut interest rates by 25 basis points in October..
