Inflation in France and Spain Hits Three-Year Low
Inflation in France and Spain fell below 2% in September, marking a three-year low and fueling optimism that the European Central Bank (ECB) may continue to reduce interest rates in October. This dip in inflation in two of the eurozone’s strongest economies has raised hopes for further monetary easing.
France’s Inflation Drops to 1.5%
France’s EU-harmonized inflation rate dropped to 1.5% in September, its lowest since July 2021. This marks a significant decline from the 2.2% recorded in August, according to data from France’s statistics office, INSEE. The monthly comparison showed prices fell by 1.2%, the sharpest drop recorded since 1990.
Spain’s Inflation Falls to 1.7%
Similarly, Spain’s annual inflation rate fell to 1.7% in September, down from 2.4% in August. This is the lowest inflation figure Spain has seen since March 2021, according to preliminary data from the Spanish statistics office, INE. Prices in Spain decreased by 0.1% compared to the previous month.
Energy Prices Drive Inflation Decline
The unexpected drop in inflation rates in both countries was largely due to declining energy prices. While food prices in France remained stable, Spain saw a slight decrease in food costs compared to September 2023. Core inflation, which excludes volatile items like food and energy, also fell to 2.4% in both countries.
ECB Could Further Cut Interest Rates
The lower inflation figures have created room for the ECB to consider further cutting its benchmark interest rates. The ECB has already reduced the deposit facility rate by 25 basis points twice this year, in June and September, bringing it to 3.50%.
ECB Focuses on Core Inflation
Though the ECB targets an overall inflation rate of 2%, its rate decisions are also influenced by core inflation figures. With core inflation also trending downward, there is growing anticipation that the ECB will make another rate cut in the coming weeks.
Market Expects Another Rate Cut
The better-than-expected inflation data has boosted market speculation about another ECB rate cut of 0.25% on October 17. Investors are now placing a 70% chance on the central bank making this move, according to Bloomberg data.
Positive Economic Outlook
The continued easing of inflation, especially in two of the eurozone’s largest economies, is generating optimism about the ECB’s ability to manage inflation while supporting economic growth through lower interest rates. If trends continue, more rate cuts could be on the horizon.
SOURCE: Ref Image from Reuters
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