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EU inflation easing

The estimate, which was in line with economists’ expectations, followed a rate of 3.8 percent in August.

Annual inflation in the eurozone has steadily slipped since hitting a record 4.0 percent in July as oil prices declined from a peak of nearly 150 dollars a barrel.

“September’s fall in eurozone consumer price inflation shows that price pressures in the region are finally receding,” said economist Jennifer McKeown at consultants Capital Economics.

Despite the fall in inflation, the rate remains well above the European Central Bank’s comfort zone, which it defines as a level of close to but less than 2.0 percent.

“While the ECB will be pleased to see eurozone inflation falling back further in September from the mid-2008 peak of 4.0 percent, it remains far too high for the bank’s liking,” said economist Howard Archer at consultants Global Insight.

While broadly ruling out an interest rate cut at Thursday’s monetary policy meeting, economists said that the fall in inflation set the stage for easing later in the future as the ECB shifts its focus from fighting inflation to boosting growth.

“We doubt that it will be too long before the Bank’s attention turns to the downturn in the real economy and see interest rates falling to 3.0 percent by the end of next year,” said McKeown.

Looking ahead, Unicredit economist Marco Valli predicted that inflation was likely to maintain its downward trajectory, increasing the scope for an interest rate cut.

“Our … projections for the euro area see consumer prices dropping below 3.0 percent early next year and bottoming out at 1.8 percent in July 2009,” he said.

“In the current environment, it’s becoming increasingly difficult for the ECB to maintain the view that inflation remains the predominant concern,” he said.