Euro area annual inflation is expected to drop to 1.8% in September, marking a significant decrease from 2.2% in August and its lowest level since April 2021. The fall below the 2.0% threshold is a key indicator of easing price pressures, which had remained persistently high over the past two years.
Breaking It Down: While inflation overall is cooling, the breakdown of price increases across sectors highlights uneven pressures. Services remain the primary contributor to inflation, recording a 4.0% annual increase in September, slightly down from 4.1% in August.
- In contrast, food, alcohol, and tobacco costs edged up to 2.4%, compared to 2.3% in the previous month.
- Non-energy industrial goods remained stable, with inflation holding at 0.4%.
Energy prices continue to drive the overall inflation rate down. In September, energy prices fell by 6.0%, a sharp decline from the 3.0% drop in August. This significant deflationary pressure in the energy sector played a key role in bringing the headline inflation rate below 2%.
- NOTE: When excluding energy from the equation, inflation remains higher at 2.6%, indicating that underlying price pressures are still present in other parts of the economy.
Looking Ahead: With energy prices stabilizing and services still exerting inflationary pressure, the European Central Bank will likely continue monitoring price trends closely. The recent dip in inflation may offer some relief, but concerns remain over the more persistent inflationary forces at play in key sectors like services and food.
