#MacroFriday: Inflation in Euro Area fell below 2% in September

Last month, inflation in the Euro Area fell to its lowest level since June 2021, more than three years ago. Headline inflation dropped to 1.8% in September, below the ECB’s 2% target. Lower-than-expected energy prices helped push inflation down. However, price increases in services have proven stubbornly sticky, with services prices still rising by 4% year-on-year in September. Core inflation (which excludes energy and unprocessed food) stood at 2.7% and is expected to decline further in the coming months.

Not every country in the Euro Area saw inflation fall below the 2% target. In Belgium, inflation stood at 3.06% in September, partly due to the phasing out of the basic package for electricity and natural gas, which will continue to contribute to inflation until February 2025. Historically, Belgian inflation (gray line) has tended to be slightly higher than its European equivalent (blue line). As inflation approaches its target, the ECB may shift its focus to growth concerns across the bloc. Rate cuts at every meeting until next summer have quickly become a base case scenario.