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Eurozone inflation dips to 4.3%, fueling interest rate hopes

September 29, 2023

Inflation in the eurozone fell to an almost two-year low. The news increases pressure on monetary policymakers to halt their recent string of painful interest rate hikes in the common currency area.

https://p.dw.com/p/4WxTP
Customers shop at a supermarket in Rome
While core inflation has cooled, more volatile food price rises remain stubbornly highImage: Jin Mamengni/Xinhua/IMAGO

Consumer prices across the 20-nation single currency bloc nudged up by an annual rate of 4.3% in September, according to data published by Eurostat — down from an increase of 5.2% in August.

While the figure remains well above the European Central Bank's target of keeping inflation below 2%, it will spur hopes that the bank might now pause its cycle of hiking interest rates.

How the figures look

Core inflation — which does not include more volatile energy, food, alcohol and tobacco prices — also slowed to 4.5% in September from 5.3% in August.

Energy prices in the Eurozone dipped further, falling by 4.7% on the back of a drop of 3.3% the previous month.

While the rate of growth of food and drink prices slowed down, it was still high at 8.8% for September compared with 9.7% percent in August, Eurostat said.

Europe's biggest economy, Germany performed better than previous months, with inflation slowing to 4.3% in September compared with 6.4% in August.

The fall in overall consumer inflation was even higher than had been predicted by analysts from the financial data firm FactSet, which foresaw it slowing to 4.5%.

What the data might mean

Jack Allen-Reynolds, deputy chief eurozone economist at research business Capital Economics, said the overall inflation rate was predicted to sink to 3.5% by the end of the year.

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"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 Reynolds.

However, he predicted that monetary policymakers might not actually start to bring interest rates down until late 2024.

Some European governments, including France, have raised opposition to any further rises in the cost of borrowing money amid fears that they would throttle the eurozone's already struggling economy.

While inflation has steadily fallen since it reached a peak of 10.6% in October 2022, one of the effects of Russia's war on Ukraine across Europe, economists say it might not fall enough to meet the ECB's target any time soon.

rc/ab (AFP, AP)