FRANKFURT (Reuters) – In September, the euro zone’s inflation rate dropped to its lowest level in two years, signaling that the European Central Bank’s steady diet of interest rate increases was working to tame inflationary trends, but at an increasing cost to economic development.
According to Eurostat’s flash estimate released on Friday, consumer prices in the 20 nations that use the euro increased by 4.3% in September, the slowest rate since October 2021, up from 5.2% a month earlier.
The largest decrease in inflation since August 2020 occurred when it dropped to 4.5% from 5.3% when it excludes food, energy, alcohol, and tobacco, which is keenly followed by the ECB as a better indicator of the underlying trend.
These figures were expected to reinforce the ECB’s belief that it had raised interest rates high enough to reduce inflation to its 2% objective by 2025, after being caught off guard by a rise that began in 2021.
Last autumn, price rise momentarily reached double digits due to a mix of rising energy costs, post-pandemic supply chain problems, and excessive government expenditure.
In response, the ECB raised its benchmark interest rate to a record high of 4.0%, up from a low of minus 0.5% in little over a year, effectively turning off the money faucets after a decade of trying to create inflation through ultra-easy monetary policy.
In September, inflation fell across the board, with all categories expanding at a slower pace and energy costs decreasing outright.