Eurozone Inflation Falls to 1.8%, Triggering Rate Cut Speculation

Eurozone inflation dips to 1.8% in September, below the ECB’s target for the first time in over three years, raising prospects for interest rate cuts.

FRANKFURT, Germany — Inflation in the 20 countries that use the euro dropped to 1.8% in September, which is the first time in over three years it’s been below the European Central Bank’s (ECB) goal of 2%.

This drop happened because energy costs were going down, giving people a break from the time when inflation was shooting up to double digits.

This report hints that the ECB might be ready to cut interest rates even more, especially after its recent moves.

Inflation went down from 2.2% in August, as the European Union’s Eurostat said. The last time inflation hit the ECB’s target was back in June 2021, when it was at 1.9%.

Economy watchers are now thinking about whether the ECB will cut rates at its next meeting on October 17.

Just a few weeks ago, people thought the central bank would wait until December to cut rates again.

The ECB is in a tricky spot—it needs to keep inflation in check, which might mean waiting to cut rates, but the slow economy argues for faster cuts.

To fight inflation, the central bank raises interest rates, which makes borrowing more expensive and slows down consumer spending, which in turn lowers demand for goods and helps ease price pressures, but it also slows down the economy.

After inflation spiked because of the recovery from the pandemic and got worse because Russia invaded Ukraine, leading to more disruptions and high energy prices, central banks like the ECB and the U.S. Federal Reserve have been quick to raise rates.

As supply chain issues start to get better, it looks like there might be a chance to slowly start cutting rates to help the economy keep moving.

But the ECB might not have beaten inflation just yet. Some experts think inflation might go up a bit later this year and certain signs of inflation, especially in service prices, are still high, which means they need to be careful.

ECB President Christine Lagarde has said that any decisions about cutting rates in the future will depend on the latest economic data and will be made on a case-by-case basis.