Eurozone inflation fell to a three-year low of 2.2 percent in August, reinforcing predictions that the ECB could reduce interest rates next month. The preliminary figur matched the 2.2 percent forecast from a Reuters poll and was down from July’s rate of 2.6 percent.
According to analysts, the inflation landscape is gradually improving, highlighting the progress toward the ECB’s 2 percent target. The European Central Bank is now in a favorable position, analysts suggest.
Read more: Eurozone inflation climbs to 2.6 percent in July, dampening ECB rate cut hope
This data from Eurostat came after Germany and Spain reported unexpected sharp declines earlier in the week. Additionally, France reported a decrease in inflation to 2.2 percent, although this figure was higher than expected, which some economists linked to price pressures stemming from the Paris Olympics.
Markets are anticipating a quarter-point cut in the ECB’s benchmark interest rate to 3.5 percent during its meeting on September 12, as inflation approaches the bank’s target.Â
The ECB already implemented a quarter-point reduction in June, while the Bank of England followed suit this month. Traders in swaps markets are factoring in two or three additional quarter-point cuts in Eurozone rates this year.
Despite the decline in energy prices reflected in the recent data, an increase in Eurozone services inflation to 4.2 percent could prompt caution among rate policymakers, especially in light of wage growth in Germany and other areas.Â
Some economists mainly attribute this rise to conditions in France, where the Olympics have inflated accommodation and transport costs, suggesting that the July services figure may be regarded as an anomaly.
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