Eurozone Inflation Slows to 1.8%, Bolstering Bets on Faster Rate Cuts

Business|Eurozone Inflation Slows to 1.8%, Bolstering Bets on Faster Rate Cuts

Inflation in the eurozone dropped below the European Central Bank’s target in September for the first time in more than three years, paving the way for faster interest rate cuts.

Consumer prices rose 1.8 percent on average across the eurozone in the month, down from 2.2 percent in August, data published on Thursday showed. The region’s central bank, which sets interest rates for the 20 countries that use the euro currency, targets inflation at 2 percent, a goal last attained in 2021.

With inflation back below the target rate and the eurozone’s economy struggling, investors are betting that the central bank will speed up the pace of its rate cuts. The chance that policymakers will cut rates at their meeting this month rose above 90 percent, financial markets show. A week ago, the chance was less than two-thirds.

“With every data release, it is becoming increasingly clear that policy rates are too restrictive in the euro area,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, wrote in an analyst note. He expects a quarter-point decrease at the next meeting.

The central bank had been emphasizing a cautious approach to lower rates, not wanting to ease monetary policy too quickly and revive inflationary pressures. Policymakers cut rates in June, paused at their next meeting in July and cut again in September. There was evidence that inflation was still stubborn in some sectors, particularly in the services industry. For the past five months, services inflation has been at or near 4 percent.

Some analysts argue that these sticky aspects of inflation will encourage policymakers to wait until December to cut rates again.

But bets of a rate cut were also bolstered on Monday by comments from the European Central Bank president, Christine Lagarde. “The latest developments strengthen our confidence that inflation will return to target in a timely manner,” she said at a hearing with a European Parliament committee. “We will take that into account in our next monetary policy meeting in October.”