Inflation has dropped, stagnation is here to stay

Inflation in the eurozone has dropped to 1.8% on a year-on-year basis in September, according to a preliminary estimate from the European statistical office, Eurostat. This marks a significant decline from the 2.2% annual inflation rate recorded in August. This reduction brings the inflation rate below the European Central Bank’s (ECB) target of 2% for the first time since mid-2021. The ECB, which has been monitoring this trend closely, has already taken steps to adjust its monetary policy. In September, the ECB lowered interest rates by 25 basis points for the second time this year, and there are strong indications that another rate cut could be imminent, possibly at the October 17 meeting. The primary driver behind the lower inflation rate in September is the decrease in energy prices, which has been influenced by the decline in oil prices. Energy costs dropped by 6%, contributing significantly to the overall reduction in inflation. Additionally, prices for services eased, although food, alcohol, and tobacco prices saw a slight increase. Despite the headline inflation rate dipping below the ECB’s target, core inflation, which excludes energy, food, alcohol, and tobacco prices, remains at 2.7%. This figure, while still above the target, is moving in [...]

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