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Canal houses in Amsterdam: The price brake was effective

Photo: Jochen Tack / IMAGO

Inflation in the eurozone weakened significantly in September, but also due to statistical effects in Germany. The inflation rate fell from 5.2 percent in the previous month to 4.3 percent, as the statistics office Eurostat announced on Friday in Luxembourg. Analysts had expected a decline, but expected a slightly higher rate of 4.5 percent on average.

"Core inflation" also declined – not including the prices for energy and food, which are particularly susceptible to fluctuations. It fell to 5.3 percent from 4.5 percent in the previous month. According to many economists, core inflation reflects underlying inflation and therefore represents the inflation trend somewhat better than the overall rate.

Food and beverages were still significantly more expensive than a year ago, but the upward trend in prices slowed from 9.7 to 8.8 percent. Energy prices continued to decline compared to the same month last year, but rose on a monthly basis.

However, bank economists pointed to statistical effects. "Almost half of the decline is due to special effects such as the expiry of the 9-euro ticket in Germany in September 2022," explained Commerzbank expert Christoph Weil. The statistical effect arises from the fact that the comparison of inflation with the same month of the previous year is usually drawn: Because the 9-euro ticket expired in the previous year, the inflation rate skyrocketed at that time – compared to this, it is now particularly low. Nevertheless, according to Christoph Weil: "Even adjusted for these effects, the trend in the core rate is now pointing downwards."

Conspicuous development in Belgium and the Netherlands

The situation is particularly striking in Belgium and the Netherlands. In Belgium, the inflation rate fell to 0.7 percent, and in the Netherlands even to -0.3 percent. A negative inflation rate means that prices have actually fallen. In principle, this only happens in exceptional cases.

However, the European Central Bank's (ECB) medium-term inflation target of two percent is still clearly exceeded. Last year, inflation was even in double digits at times after the start of the Ukraine war. Since then, it has been declining in trend.

For more than a year, the ECB has been bracing itself against high inflation with sharp interest rate hikes. Most recently, however, it has indicated that the interest rate peak could have been reached. The current development is likely to be noted with pleasure by a majority of ECB Governing Council members, said Commerzbank expert Weil. "Presumably, the ECB will not raise its interest rates any further."