Inflation in the eurozone continued to weaken in September. The inflation rate fell to 4.3 percent and the increase in the core rate also fell significantly. This could mean that the ECB’s interest rate peak has been reached.
Inflation in the Eurozone is becoming increasingly weaker due, among other things, to interest rate increases by the European Central Bank (ECB). Consumer prices only rose by 4.3 percent in September compared to the same month last year, as the Eurostat statistics office announced today in an initial estimate. This is the lowest value since October 2021.
The decline was also stronger than expected – economists had expected inflation to reach 4.5 percent. In August the inflation rate was 5.2 percent. The core rate, which excludes volatile energy and food prices as well as alcohol and tobacco, also fell sharply to 4.5 percent in September after 5.3 percent in August.
Core rate is likely to have passed its peak
The ECB has a particularly close eye on this measure. It is considered an important indicator of underlying inflation trends. “The inflation rate has finally visibly passed its peak without the volatile prices for energy and food,” said Jörg Krämer, chief economist at Commerzbank. The 9-euro ticket, which was temporarily introduced in Germany last summer, no longer distorts the inflation data for the euro area.
The significant decline is likely to provide further arguments for those monetary authorities who, in view of the weakening economy in the euro area, are calling for an end to the tightening course initiated in the summer of 2022. “The downward trend that is now also visible in core inflation will please the many doves in the ECB Governing Council,” said Krämer.
In the fight against inflation, the central bank had raised key interest rates ten times in a row since July last year, most recently by a quarter of a percentage point in mid-September. The benchmark deposit rate on the financial market that financial institutions receive from the central bank for parking excess funds is now 4.00 percent. This is the highest level since the start of the monetary union in 1999.
Experts expect interest rate peaks, but not rapid reductions
Even if the ECB’s medium-term inflation target of two percent is still clearly exceeded, economists believe the central bank has probably reached its interest rate peak. “We assume that the interest rate peak has been reached,” emphasized Thomas Gitzel, chief economist at VP Bank. However, there will be no reductions for the time being. “The inflation rate is still too high for that.”
KfW chief economist Fritzi Köhler-Geib even sees cutting interest rates too early as a danger: “Easing monetary policy too early would be counterproductive and increase the risk of a second wave of inflation. My expectation is therefore that the ECB will keep key interest rates at the level reached for a longer period of time left.”
Alexander Krüger from Hauck Aufhäuser Lamp Privatbank also does not expect a rapid reduction in key interest rates. “The price of crude oil and wages in particular keep the inflation risks pointing upwards,” he explained. The next interest rate meeting is on October 26th. Last year, inflation was at times in the double digits as a result of the Ukraine war.
Inflation in Italy is surprisingly increasing
Although food and beverages were still significantly more expensive than a year ago, the price increase weakened from 9.7 to 8.8 percent. The prices of industrial goods and services also rose more slowly than in August. Energy prices fell by 4.7 percent in September compared to the same month last year. In August the decline was somewhat weaker at 3.3 percent.
In Germany, inflation in September is now at its lowest level since the start of the Russian attack on Ukraine, as the Federal Statistical Office announced yesterday. The inflation rate this month is expected to be 4.5 percent. The Federal Office gave the harmonized consumer price index, which Eurostat takes into account, to be 4.3 percent. The reason for the decline is primarily a statistical base effect as a result of the 9 euro ticket for local transport and the fuel discount from last year.
In Italy, however, inflation surprisingly accelerated in September. Consumer prices (HICP), calculated using the European method, rose by 5.7 percent compared to the same month last year, as the Istat statistics office in Rome announced. In the previous month the rate was 5.5 percent. Analysts on average had expected a decline to 5.3 percent. Month-on-month, the HICP rose by 1.7 percent. That was also beyond expectations.