Inflation in France and Spain plunged below 2 per cent “- fueling bets that the European Central Bank will speed up the pace of interest-rate cuts.
Data Friday showed consumer prices in France rose 1.5 per cent from a year ago in September “- sinking below 2 per cent for the first time in more than three years mainly due to falls in energy costs. Spain saw a similar trend, with inflation easing to 1.7 per cent on fuel, power and food.
Analysts had expected readings of 1.9 per cent for each country. A separate ECB survey published later Friday showed consumers expect prices to rise more slowly over the coming years.
Cooling inflation across the 20-nation bloc has allowed the ECB to lower its deposit rate twice this year, with most policymakers indicating that a gradual path down has begun. A surprise contraction in the private-sector economy, however, has boosted wagers that monetary loosening will soon be accelerated.
There were further signs of weakness Friday in Germany, where unemployment rose more than anticipated this month “- signaling that another economic rough patch is having an increasing impact on the labor market.
After this morning’s data, markets boosted bets on another quarter-point rate cut on October. 17, now pricing about an 80 per cent chance of such a scenario.
The ECB has warned, however, that price gains in the region will probably pick up again later this year, with the retreat back to target unlikely to be fully complete until late 2025.
Officials will get a clearer picture of the situation over the coming days. Italy and Germany are set to publish data for this month on Monday, and the euro zone will do so itself on Tuesday.
For the ECB, however, headline inflation numbers have been taking a back seat to readings of price pressures in the services sector, which exceeded 4 per cent in August and are frequently cited by hawks as grounds for prudence when cutting rates.
France’s September data also showed a moderation in services, where inflation eased to 2.5 per cent from 3 per cent.
