FRANKFURT, Sept 29 (Reuters) – Euro zone inflation fell to a two-year low in September, undermining the European Central Bank’s steady rate hike diet even as the costs of economic growth rise. This suggests that the economy has been successful in controlling runaway prices.
Consumer prices in the 20 euro-sharing countries rose 4.3% in September, the slowest pace since October 2021, up from a 5.2% rise a month earlier, according to preliminary figures from Eurostat released on Friday. Ta.
Inflation, which excludes food, energy, alcohol and tobacco (which the ECB focuses on to better gauge underlying trends), fell from 5.3% to 4.5%, the largest decline since August 2020. became.
These readings could strengthen the ECB’s confidence that it has raised rates enough to bring inflation down to its 2% target by 2025, after taking a false step with rising inflation that began in 2021. is high.
“Base effects played a key role in explaining the sharp decline in inflation, but this number reflects a decline in underlying inflationary pressures,” said Diego Iscaro, head of European economics at S&P Global Market Intelligence. “It also suggests that the situation is growing.”
“This number supports the view that interest rates have likely peaked in the current tightening cycle.”
The decline in inflation was broad-based, with the pace of growth slowing in all price categories, and energy prices fell sharply for the fifth consecutive month.
A separate report showed that German import prices – which tend to drive consumer prices because Germany sources many intermediate products and raw materials from abroad – rose to their highest level in August since November 1986. This marked a year-on-year decline.
recession?
Inflation in the euro zone briefly reached double digits last fall amid a combination of soaring energy costs, post-pandemic supply chain disruptions and massive government spending.
In response, the ECB raised its key interest rate from a trough of -0.5% to a record high of 4.0% in just over a year, turning off the money tap spent a decade trying to stimulate inflation through ultra-easy monetary accommodation. policy.
But the economic impact of the ECB’s sharpest tightening cycle in its nearly 25-year history is becoming increasingly clear, with some indicators pointing to a possible euro zone recession.
German retail sales fell in August and unemployment rose in September, data released early Friday showed, with the eurozone’s largest economy potentially heading into a second recession this year. One thing was confirmed.
So far, the ECB has stuck to its forecast that the economy will recover next year, in part due to rising real wages as inflation falls.
But Natixis economist Dirk Schumacher said this outlook assumes that the external environment, including in China, where the economy is slowing, does not deteriorate further and that investment remains strong.
Schumacher added: “Interest rates are rising much faster than before, so looking at the past as a model can be misleading.”
Written by Francesco Canepa.Editing: Toby Chopra
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