Eurozone Inflation Falls To Nearly Two-year Low

Eurozone inflation dropped to an almost two-year low in September, official data showed Friday, raising hopes that the European Central Bank will end its rate-hiking cycle.

The ECB has increased rates repeatedly to tame red-hot inflation, but the pain is being felt across the eurozone economy.

Consumer prices in the 20-nation single currency bloc rose by an annual rate of 4.3 percent, according to data published by Eurostat, down from 5.2 percent in August.

It is the lowest since October 2021.

The figure beat a consensus forecast by analysts compiled by financial data firm FactSet which said inflation would slow to 4.5 percent in September.

But inflation remains well above the ECB's two-percent target.

Friday's data will spur hopes among investors that the ECB will pause its rate-hiking cycle, as the eurozone economy weakens and concerns mount about the burden on households and businesses as a result of higher borrowing costs.

Core inflation, which strips out volatile energy, food, alcohol and tobacco prices, also slowed to 4.5 percent in September from 5.3 percent in August.

Core inflation is the key signal for the ECB.

"September's sharp drop in eurozone inflation was largely due to base effects, but core inflation also came in below expectations. This reinforces our view that the ECB has finished raising interest rates," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

But he predicted any rate cuts will likely not come until late 2024.

ECB chief Christine Lagarde said Monday that she recognised the "pain" of the aggressive rate hikes but insisted they were necessary to tame inflation.

European governments, including France, have raised opposition to any further rate rises.

Inflation has steadily fallen since it reached a peak of 10.6 percent in October 2022 following the devastating effects of Russia's war on Ukraine across Europe.

Economists warned, however, against expecting inflation to fall further enough to hit the ECB's target.

"Higher energy and wage costs do keep the risk alive that inflation could remain above target for longer than hoped," said ING's senior eurozone economist, Bert Colijn.

He pointed to the recent advance in oil prices and said he expected that "this will mainly push eurozone inflation higher at the start of next year".

Energy prices in the eurozone, however, dipped further in September, falling by 4.7 percent on the back of a drop of 3.3 percent the previous month.

The rise in food and drink prices also slowed down, reaching 8.8 percent in September compared with 9.7 percent in August, according to Eurostat.

The Netherlands was the only country where consumer prices fell by 0.3 percent, according to Eurostat figures.

Germany, Europe's biggest economy, performed better than previous months, with inflation slowing down to 4.3 percent in September from 6.4 percent in August, Eurostat data showed.