Inflation in the eurozone fell to 1.8% in September, below the European Central Bank's (ECB) target of 2% for the first time in more than three years, as falling energy prices give consumers relief from a burst of inflation that at one point reached double digits.
Tuesday's official figure, coupled with an anemic growth outlook in the 20 countries that use the euro, could pave the way for faster interest rate cuts from the ECB, which has already trimmed rates twice.
Inflation fell from 2.2% in August, according to European Union statistics agency Eurostat. The last time inflation hit the ECB's 2% goal was in June 2021, when it was 1.9%.
Economists have started to consider the possibility of a rate cut at the bank's Oct. 17 meeting. A few weeks ago, the expectations were that the central bank would wait until December before lowering borrowing costs again for consumers and businesses.
The Frankfurt-based body has already cut borrowing costs twice in recent months.
The latest figures "should be sufficient to persuade the ECB to cut rates in October, even though services inflation remained high," said Franziska Palmas, senior Europe economist at Capital Economics research group.
The bank must juggle the need to make sure inflation is under control, which would mean waiting longer to lower rates, against concerns over slow economic growth, which would argue for swifter cuts.
Higher central bank interest rate benchmarks combat inflation by raising rates throughout the economy, making it more expensive to borrow and spend. That reduces demand for goods and puts pressure on prices. But that also slows economic activity.
With inflation now below target, the ECB's "concerns seem to be shifting toward the lackluster growth environment," said Dutch banking giant ING's Bert Colijn.
The ECB, U.S. Federal Reserve (Fed) and other central banks rapidly raised rates to combat a burst of inflation that broke out as the economy rebounded from the pandemic, straining supplies of parts and raw materials, and after Russia invaded Ukraine.
Now, those rates are being scaled back; the Fed cut by an outsized half-percentage point at its last meeting.
The invasion led Russia to cut off natural gas pipeline supplies to Europe, spiking energy prices there and raising fears that Russian oil would be lost to the global market. Those strains have largely eased and inflation is low enough that central banks are cautiously trimming rates to keep the economy chugging.
The ECB might not be able to declare a final victory over inflation quite yet.
Economists expect inflation to tick slightly higher before the end of this year, and some underlying measures of inflation, such as services prices, are still high enough to instill caution.
ECB President Christine Lagarde has said the bank is not committing to a future rate cut schedule but will take decisions from meeting to meeting based on incoming economic data.
Energy prices provided much of the relief in Tuesday's figure, falling by 6%, compared with a drop of 3% in August, Eurostat data showed.
Core inflation, which strips out volatile energy, food, alcohol and tobacco prices and is a key indicator for the ECB, cooled slightly to 2.7% in September from 2.8% in August.
Services inflation, which had been accelerating in recent months, slowed to 4%, down from 4.1% in August.
But food and drinks prices ticked up slightly, by 2.4% in September, compared with 2.3% in August.
Lagarde warned inflation "might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates."
But she told a European Parliament hearing Monday that "the latest developments strengthen our confidence that inflation will return to target in a timely manner."
Inflation was below the target in the eurozone's two biggest economies, Germany and France, at 1.8% and 1.5%, respectively. It was well below the target in the No. 3 economy, Italy, at 0.8%.
Low inflation in Germany, however, is in part a reflection of weak growth in that economy.
Ireland registered the lowest inflation rate in September across the eurozone, at 0.2%, the data showed.
The eurozone economy grew only a modest 0.3% in the second quarter over the quarter before, as consumer spending remains lackluster against a background of unsettling news over wars in the Middle East and Ukraine and reports of layoffs or potential job cuts at major firms.
The ECB said last month it expects expansion of just 0.8% this year, a figure revised down from a previous prediction of 0.9% published in June.
