Euro zone inflation falls to lowest in 2 years as economy slows -September 29, 2023 at 05:00 am EDT

FRANKFURT, Sept 29 (Reuters) – Inflation in the euro
zone fell to its lowest level in two years in September,
suggesting the European Central Bank’s steady diet of interest
rate hikes was succeeding in curbing runaway prices albeit at a
growing cost for economic growth.

Consumer prices in the 20 countries that share the euro rose
by 4.3% in September, the slowest pace since October 2021, from
5.2% one month earlier, according to Eurostat’s flash reading
published on Friday.

Inflation excluding food, energy, alcohol and tobacco —
which is closely watched by the ECB as a better gauge of the
underlying trend — fell to 4.5% from 5.3%, the biggest drop
since August 2020.

These readings were likely to strengthen the ECB’s
conviction that it had raised interest rates far enough to bring
down inflation to its 2% target by 2025, after being
wrong-footed by a surge that started in 2021.

Price growth briefly hit double digit last autumn amid a
combination of soaring energy costs, post-pandemic snags in
supply chains and high government spending.

In response, the ECB lifted its key interest rate to a
record-high of 4.0% from a trough of minus 0.5% in just over a
year, turning off the money taps after a decade spent trying to
stimulate inflation via an ultra-easy monetary policy.

The inflation drop was broad-based in September, with all
categories growing at a slower pace and energy prices falling
outright for a fifth consecutive month.

But the effect on the economy of the steepest tightening
cycle in the ECB’s near 25-year history was becoming
increasingly apparent, with some indicators pointing to a
possible recession in the euro zone.

German retail sales unexpectedly fell in August, data showed
earlier on Friday, and the euro zone’s biggest economy may be
heading for its second recession this year.
(Reporting by Francesco Canepa; Editing by Toby Chopra)