Inflation in the Eurozone finally fell below the 2% target more than three years later. The region’s consumer price index (CPI) was in September 1.8% over one year after 2.2% in August. This is the lowest figure since June 2021, on the eve of the great inflationary crisis. In the same vein, the underlying CPI (in this case excluding energy, food, alcohol and tobacco), more rigid and therefore more observed recently, fell by a tenth to 2.7%. over a year. Although these declines are in line with what analysts expected and the drop below 2% in preliminary CPIs for Germany, France, Spain and Italy pointed the way forward, the data paves the way for the ECB’s final fireworks: a cut in interest rates In October, this was not an option, nor the possibility of deeper reductions in the short term, as strategists like those at Deutsche Bank.
Even if this is a preliminary figure which will have to be confirmed and enriched in the middle of the month, the Eurostat distribution shows the importance of energy prices. energy in the data. The article records a reading of -6% over one year and -1.6% over one month. The other most observed “leg”, that of the servicesdue to its persistence and its effect on wage pressures, continues to post a difficult figure of 4% over one year, a level from which it is difficult to go down, to the great displeasure of the ECB, but shows a -1% over a year. -one year after summer which brings a little calm.
“The preliminary estimate of Eurozone inflation for September is rather a confirmation of the results already published for 80% of the region. All reported inflation figures lower than expected. Energy prices contribute to reduce inflation figures overall, but we have also received indications that service prices are losing momentum more than usual, as happened last year. It is also clear that these are the same service prices that came under additional upward pressure over the summer and are now falling. While a single number shouldn’t determine everything, the gap from what we previously expected is a little too large in many economies, and a little too unequivocal to not matter,” says Marcus Widén, analyst at the Swedish bank SEB.
To this “breeding ground”, we must add the weak PMI data from a few weeks ago, confirmed this Tuesday, and an increasingly gentle tone from several members of the ECB. “The ECB has forced its reliance on data, and any reduction beyond an October cut will now be difficult to justify. We also believe that the ECB will abandon its strategy of one interest rate cut per quarter and that, therefore, the central bank will continue to lower interest rates at each meeting and the deposit rate will reach 2.00% in June 2025,” Widén said.
The President of the ECB herself, Christine Lagarde, left statements on Monday that can be interpreted as an open door to a rate cut in October: “In the future, inflation could temporarily increase in the fourth quarter of this year due to previous sharp declines in the energy sector. prices could deviate from annual rates, but recent developments reinforce our confidence that inflation will return to its target in due time. We will take this into account at our next monetary policy meeting in October“, he said in front of several deputies. Immediately, bets on the market began to give about 90% probability of a decline at the next meeting.
Lagarde’s change in rhetoric and stronger-than-expected disinflation have given a twist to rate cut forecasts from one of Europe’s biggest banks that extend beyond the October meeting itself. From German Bank now they are planning a rate cut at this meeting (previously they were not planning any) and another at this meeting. December what could even be a “huge” drop (50 basis points), which would be an absolute surprise.
“After an even larger-than-expected fall in inflation measured in September, we are accelerating the ECB’s next rate cut of 25 basis points (bps) from December to October. Even if inflation will increase in the months Due to the underlying energetic effects, the recent faster decline makes it more likely. The ECB revises its forecasts downwards in December and see inflation sustainably converge towards the objective before the fourth quarter of 2025″, say Deutsche Bank analysts in a report published this morning.
Given the latest surprises and the gradual decline in the price of oil (one of the main factors drivers of inflation), these experts go further and do not exclude a “jumbo” rate cut in December which would be added to that of October: “Our base scenario assumes a rate of consecutive cuts of 25 bp then that rates are returned to neutrality by However, if recent weaker trends in growth and inflation continue, 50bp cut in December could be a tight call“, they admit from Deutsche Bank.
According to the German bank’s economists, the downward surprise in inflation in September increases the probability that the team that makes up the ECB (Council of Government, advisors, panelists, etc.) will review its outlook and indicate that inflation will reach the objective. in a sustained manner, more quickly than expected. “The ECB expects some rebound in general CPI by the end of the year, but we think its services could overestimate this movement,” comment Deutsche Bank.
“Given what we already know about energy prices, we believe that energy inflation could surprise the ECB on the downside in the coming months. With benchmark rates potentially still above the restrictive neutral level, even with a 25 basis point cut in October, there is little risk of accelerating the next rate cut. “A reduction in October would better balance risks to the inflation path in 2025-26, while leaving the Governing Council with all options available in December, when a full reassessment of inflation forecasts will be available,” they say. German Bank.
