Eurozone inflation estimate falls below ECB's 2% target in September

Inflation in the Eurozone is expected to have fallen to 1.8% in September, its lowest level since April 2021, according to new estimates. This is a four percentage point decrease from 2.2% in August.

The reading is below the bloc's target of 2%.

Energy prices fell 6% and inflation slowed to 4% for services, while prices for food, alcohol and tobacco increased slightly.

Despite evidence that overall inflation headed below the ECB's target rate of 2% in September, the core rate of inflation — which strips out more volatile measures — still came in above target at 2.7%.

Among the bloc's largest economies, inflation slowed in Germany (1.8% vs 2% the previous month), France (1.5% vs 2.2%), Italy (0.8% vs 1.2%), Spain (1.7% vs 2.4%).

READ MORE: UK set for highest inflation of G7 group

The European Central Bank (ECB) has previously said that their commitment to the inflation target of 2% is "symmetric".

"We view inflation that is too low just as negatively as inflation that is too high," the bloc central bank says on its website.

The drop comes after the ECB cut interest rates for second time this year in September to 3.5%. ECB president Christine Lagarde said the move to lower the benchmark deposit rate was “unanimously decided”.

She signalled that more rate cuts were expected but downplayed the likelihood of one at its meeting in October.

The latest data could point to further cuts, analysts said.

“While President Lagarde indicated to markets at the last meeting that an October cut was not in the bank’s baseline scenario, we think that macroeconomic data since then is highly likely to force the bank’s hand," said Matthew Ryan, head of market strategy at Ebury.

"Not only is inflation continuing to come down nicely, but the Euro Area economy appears to have practically stagnated in the third quarter of the year, at least according to last week’s dismal set of business activity PMI figures."

He added: “We see another 25 basis point cut as set in stone this month, with Lagarde likely to both express greater confidence on inflation and warn over the state of the bloc’s economy. This would likely tee up a third straight rate reduction at the bank’s December meeting, which is now fully priced in by swap markets following today’s data.”