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Today, we dive into the recent rate cut decision by the European Central Bank (ECB) and its impact on the inflation outlook. The ECB’s move to lower rates was driven by its updated assessment of inflation, underlying inflation dynamics, and monetary policy transmission strength.
According to the ECB’s rate statement, the inflation outlook is influenced by recent downside surprises in economic activity indicators, leading to a slowdown in CPI Inflation in the eurozone to 1.7% in September (YoY). This drop below the ECB’s 2.0% inflation target for the first time in over three years triggered the rate cut decision.
Looking ahead, the ECB anticipates a rise in inflation before it returns to the target next year. The statement highlighted that while domestic inflation remains high with wages increasing at a rapid pace, labor cost pressures are expected to gradually ease, partially offsetting their impact on inflation.
Core inflation, excluding energy, food, alcohol, and tobacco prices, also saw a slight dip to 2.7% in September (YoY) from 2.8% in August, slightly below the forecasted 2.8%. Overall, the ECB’s decision reflects its commitment to maintaining price stability and supporting economic growth in the eurozone.
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