Inflation in the eurozone dipped below 2 per cent for the first time since mid-2021, reinforcing grounds for a rate cut by the European Central Bank (ECB) this month.
In the 20 countries sharing the euro, inflation fell to 1.8 per cent in September from 2.2 per cent in August largely due to lower energy costs and lower commodity prices, Eurostat reported on Tuesday.
Meanwhile, a core inflation fell to 2.7 per cent from 2.8 per cent amid slower growth in service prices. The ECB has already cut rates in June and September. President Christine Lagarde signalled on Monday that another rate cut could come later this month given the encouraging price trend.
Rapid wage growth has been driving up the cost of services for years. However, economists have long predicted a slowdown given softening labour markets, weak growth and modest wage increases.
Falling energy prices remain the biggest contributor to disinflation, while prices of non-energy manufactured goods rose just 0.4 per cent year-on-year. Lagarde has already said that inflation is now below the core rate predicted by the ECB.
The markets estimate the probability of a rate cut on 17 October at 85%, compared to 25% at the beginning of last week. Investors also assess the probability of a rate change before the end of the year at just over 50 basis points. This means that one rate cut after another is already priced in completely.
The ECB forecasts rates to rise to just above 2.5% by the start of the year, but sharply falling oil prices point to downside risks to such a scenario.
