Euro zone inflation drops to 4.3% in September, hitting Oct. 2021 lows.

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The latest flash figures show that annual inflation in the euro zone has dropped to its lowest level since October 2021, falling to 4.3% in September. This is a decrease from the 5.2% reading in August, and the month-on-month inflation also dipped from 0.5% to 0.3%. Core inflation, which excludes energy, food, alcohol, and tobacco, dropped to 4.5% year-on-year in September from 5.3% in August. These figures come after the European Central Bank decided to hike interest rates to a record level in September, signaling its belief that rates may be at sufficiently high levels to bring inflation to target in the medium term.

Despite the efforts to dampen expectations for rate cuts, with the French central bank Governor stating that it would be premature to bet on the first cut’s timing, the situation remains complicated. The ECB projects a modest economic growth of 0.7% for the euro area this year, followed by 1% and 1.5% over the next two years. Furthermore, the recent surge in oil prices could pose a risk to the bank’s inflationary forecasts. The inflationary picture also remains divergent between European nations, with Germany experiencing annual price rises above target at 4.3% and grappling with an economic contraction.

According to estimates from Eurostat, headline inflation harmonized across euro zone nations in September was 5.6% in France and 3.2% in Spain. Additionally, Slovakia and Slovenia are facing higher rates of inflation at 8.9% and 7.1%, respectively. These divergent figures highlight the ongoing challenges and disparities within the euro zone’s inflation landscape.

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