Inflation reached 2.9% in October, compared to 4.3% the previous month, as announced this Tuesday by Eurostat, the EU statistics office. The main cause was the double-digit drop in fuel prices, which decreased by 11.1%.
Despite mixed economic performance in the 20-nation common currency bloc, challenges from high inflation persist. The eurozone is grappling with a major economic slowdown, as recent data indicates a sharp drop in inflation and a contraction of the region’s economy.
According to a preliminary report released Tuesday by Eurostat, the European Union’s statistics agency, inflation across the region plummeted to a two-year low of 2.9% in October, down sharply from 4 .3% registered the previous month. The decline also fell below the advance consensus estimate of 3.1% in a Reuters poll of economists.
Core Inflation Falls More Than Expected to 4.2%
Eurostat revealed that core inflation, which excludes volatile food and energy prices, saw a notable decline, falling to 4.2% year-on-year in October from 4.5% the previous month. An in-depth analysis of inflation components revealed that food, alcohol and tobacco recorded the highest annual rate in October at 7.5%, compared to 8.8% in September, closely followed by services with 4.6% and non-energy industrial goods with 3.5%. %, and energy at -11.1%, a significant drop from -4.6% in September.
The Eurozone Economy Suffers a 0.1% Quarterly Fall
In a separate statement, Eurostat also revealed that the eurozone economy faced a contraction of 0.1% in the third quarter, below the consensus estimate that predicted GDP would remain unchanged from the previous quarter.
The European Central Bank (ECB) predicts that the economy will grow by 0.7% at the end of this year, 1% next year and 1.5% in 2025. Germany, the country that represents the largest economy in Europe, experienced a slight quarterly drop of 0.1%, performing slightly better than the anticipated 0.3% drop according to a Reuters poll of economists.
However, in adjusted price terms, the German economy still showed a worrying contraction of 0.8% compared to last year. During the third quarter, Latvia took the lead in the eurozone with the highest quarterly growth, recording a substantial increase of 0.6%. Belgium and Spain followed closely with growth rates of 0.5% and 0.3%, respectively.
Ireland faced a significant setback, experiencing the largest quarterly drop of 1.8%, while Austria also had to deal with a moderate drop of 0.6%. The euro region has been struggling with high inflation since last year after the pandemic.
The ECB Suspends Interest Rate Hikes
Despite mixed economic performance in the 20-nation common currency bloc, challenges from high inflation persist. This prolonged period of inflationary pressure, which peaked at 10.6% in October 2022, led the European Central Bank (ECB) to implement a series of interest rate hikes.
However, the bank decided last week to suspend rate hikes, reflecting the potential impact of the ongoing conflict between Israel and Hamas, which poses significant upside risks to energy costs. Although the recent slowdown in inflation may provide some relief, industry experts have warned against premature assumptions of an immediate economic recovery.
ECB President Christine Lagarde believes the current economic climate within the eurozone is expected to remain subdued for the rest of the year. Lagarde emphasized these points during her speech at a conference in Athens last week.
“The economy is likely to remain weak for the rest of this year. But as inflation falls, real household incomes recover and demand for eurozone exports increases, the economy should strengthen in the coming years,” she said.
By Leonardo Pérez
