Eurozone inflation falls sharply; September rate cut likely

Investing.com - Eurozone inflation fell to its lowest level in three years, according to data released earlier Friday, pointing to  another European Central Bank interest rate cut next month.

Eurozone consumer price growth slowed to 2.2% in August on an annual basis, from 2.6% the prior month, moving closer to the ECB's 2% target after three years of above-target price growth.

Core inflation, which excludes volatile food and energy costs, eased to 2.8%  from 2.9% a month earlier, also in line with expectations.

The European Central Bank is widely expected to cut interest rates on Sept. 12, having started a rate-cutting cycle in June, but debate remains over whether there will be further rate cuts this year.

"For the ECB, the modest progress in core inflation and wages now and expectations for next year seem enough to cut by 25 bps in September,” said analysts at ING, in a note.” But this remains a slow and gradual process of releasing the brakes on the economy as the ECB continues to be concerned about upside risks to the inflation outlook."

These figures will undoubtedly be welcomed by ECB policymakers, but it could still take until the end of 2025 for price growth to ease back to target on a more sustainable basis.

Rapid wage growth remains the ECB’s top concern, especially since services, the largest single item in the consumer price basket, is particularly sensitive to wages.