Preliminary figures showed that inflation in the Eurozone eased further to 1.8% in September, from 2.2% in August, as energy prices continued to decline. This marks the first time in three years that headline inflation has fallen below the European Central Bank's (ECB) 2%-3% target, UOB Group economist Lee Sue Ann notes.

Energy prices continue to decline

“Eurozone inflation fell to 1.8% in September, from 2.2% in August, coming in below the ECB’s 2% target, according to preliminary data. Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, came in at 2.7%.”

“While we are cognizant that the risk of a rate cut in October certainly seems more likely than before, we maintain our view of the ECB cutting again only when policymakers convene in December for the final time this year.”

“We think that the widely watched services inflation, which eased slightly only to 4.0% in September, from 4.1% in August, is still high for the ECB. Furthermore, inflation dynamics are quite different across Eurozone countries.”