Case builds for deeper ECB rate cuts as inflation drops again

The numbers on Tuesday confirm a trend already seen in Ireland, where data on Monday showed inflation running at just 0.2pc in the 12 months to September.

At euro-area level, falling energy prices are the key factor in easing the post-Covid, post-Ukraine invasion, price spike that at one point reached into double digits.

Tuesday's official reading from the European statistics agency Eurostat builds the case for further interest rate cuts, potentially as soon as October 17 when ECB policy setters are due to hold their next meeting.

There had been a consensus that the next rate cut wouldn't happen until December, but slowing inflation and weak economic growth in much of Europe, including Germany, builds the case for a possible faster move.

Annualised inflation fell from 2.2pc in August to 1.8pc in September, the first time since June 2021 the pace of price rises has been below 2pc.

Inflation both in Ireland and across the euro area is now below the ECB's preferred pace of near 2pc, a rate seen as a sign of a healthy economy.

Interest rate setters try to calibrate interest rates to either spur or ease the flow of credit into the economy with the aim of moderating inflation over the medium term.

Speaking on Monday at the European Parliament in Brussels, ECB president Christine Lagarde said her bank is becoming more optimistic that it will be able to get inflation under control, and will reflect on that at its October interest-rate decision – a strong hint that another interest rate cut is on the way.

"Inflation might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates, but the latest developments strengthen our confidence that inflation will return to target in a timely manner," Ms Lagarde said.