Eurozone Inflation Drops Below 2%, Sparking Rate Cut Expectations

The inflation rate in the Eurozone has declined to 1.8%, marking the first time it has dipped below the 2% target in over three years. This significant drop is driven largely by decreasing energy prices, which fell by 6%, while service prices rose by 4%.

The European Central Bank (ECB) has responded by cutting interest rates multiple times this year, with reductions in June, July, and September. Further cuts are anticipated in October as the ECB aims to stabilize inflation at around 2% in the medium term.

ECB President Christine Lagarde has expressed confidence that inflation will soon align with the target, but she also cautioned that the current low rate might be temporary. The core inflation rate, which excludes volatile items like energy and food, remains slightly above 2%, potentially complicating further rate cuts.

Economic weakness in the European Union, combined with the anticipated rise in the Consumer Price Index (CPI) by year-end, adds to the ECB's challenges. Despite these complexities, the ECB projects a modest GDP growth of 0.8% for the year.

In Spain, the reintroduction of VAT on basic food items from October 1 may exert additional pressure on prices. Overall, the Eurozone's economic landscape remains intricate, with the ECB poised to make crucial decisions in the coming weeks.