European monetary authorities are again puzzling out how to handle inflation. Surprisingly, the annual consumer price index in the eurozone dropped to 1.8% last month. Experts pinpointed the underlying reason - the decline in fuel prices.
In the first month of autumn, inflation in the eurozone decreased to 1.8% on year. The annual CPI has sunk below the target of 2% for the first time since 2021. The index slipped to 2.2% in August.
Such drastic changes in the inflation dynamics enable market participants to bet on a decrease in the ECB's refinancing rate. Preliminary forecasts suggest another rate cut by 0.25% could happen by the end of October. Another similar rate cut will follow by the end of 2024. Experts say that such forecasts are based primarily on the sharp decline in fuel and energy prices.
Earlier, ECB President Christine Lagarde confirmed market expectations, stating that the regulator would take into account the growing optimism regarding consumer prices in the eurozone when making decisions on interest rates.
With such fundamental conditions, analysts assess a 90% likelihood of an imminent rate cut at the nearest EB policy meeting. Last week, experts and market participants discussed a faster easing of monetary policy when S&P Global surveys showed a contraction in the eurozone economy, sluggish demand, and waning price pressure. Such changes have been recorded in many of the large economies in the eurozone, including the EU's powerhouse—Germany. Notably, the German economy is currently causing the greatest concern among experts, as it might face a recession.
