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Eurozone Inflation: A September surprise amidst rising oil prices

In a surprising turn of events, European countries witnessed a notable drop in inflation rates for the month of September, despite the backdrop of climbing oil prices. The European Commission’s statistical arm reported that consumer prices in the 20 countries using the euro as their currency rose at an annual rate of 4.3 per cent, down from 5.2 per cent in August. This unexpected dip in inflation marks the lowest level since before the onset of the Ukraine conflict.

The eurozone, which had experienced a peak in inflation at an annual rate of 10.6 per cent the previous year, has been on a steady decline over the past year. This downturn in inflationary pressures is further exemplified by core inflation, a measure that excludes volatile categories like food and energy. Core inflation eased from 5.3 per cent in August to 4.5 per cent in September, underlining a more stable pricing environment.

Nation by Nation

Germany, Europe’s economic powerhouse, witnessed a sharp drop in its annual inflation rate, plummeting from 6.4 per cent in August to 4.3 per cent in September. A notable reason behind this decline is the annual calculation of figures. A yearlong program offering subsidized rail fares, which concluded in June, had artificially inflated inflation rates during the summer months. This effect, however, has now exited the annual comparison, contributing to the observed decline.

On the other hand, France experienced a minor dip in its inflation rate, falling from 5.7 per cent to 5.6 per cent in September. Italy saw a slight increase to 5.7 per cent from 5.5 per cent in August. Spain, typically known for its lower inflation rates in Europe this year, witnessed its inflation increase for the third consecutive month, reaching 3.2 per cent in September. This surge was attributed to rising electricity and fuel costs, as reported by the country’s National Statistics Institute.

The eurozone’s highest inflation rate was recorded in Croatia at 7.3 per cent, underscoring the varied inflationary trends across the region. In contrast, the Netherlands experienced a deflationary trend with prices dropping to -0.3 per cent, making it the only country where prices were lower than they were a year ago.


Economists are taking notice of these developments, even suggesting that this might be the onset of an “accelerated decline” in eurozone inflation. They expect revisions to inflation predictions in light of this data, questioning the European Central Bank’s forecast of 2.9 per cent for core inflation in 2024.

Regarding future actions, slowing inflation is expected to bolster expectations that the European Central Bank (ECB) may pause its campaign of raising interest rates further at its upcoming October meeting. However, it is unlikely that the elevated interest rates, which have been weighing on both businesses and consumers, will decrease in the near term. ECB President Christine Lagarde hinted that rates would remain unchanged until inflation approached the bank’s 2 per cent target.


Lagarde emphasized that managing inflation is a long-term endeavor, stating, “This is something that is not measured in short distances. It’s a long race that we are in.” The ECB recently raised its deposit rate for the tenth consecutive time as part of its ongoing efforts to curb inflation. While these high rates make borrowing more expensive, potentially hindering business expansion and consumer spending, they are particularly burdensome for households with variable mortgage rates, constituting a significant portion of mortgage holders in the European Union.

Moreover, consumer confidence in Europe dropped for the second consecutive month in September, as reported by the European Commission. This suggests growing concerns among consumers about the economic outlook amidst persistent price increases.