Inflation in France and Spain plunged below 2% bolstering investors' and economists' predictions that the European Central Bank (ECB) will accelerate interest rate cuts.
Data on Friday showed consumer prices in France rose by 1.5% from a year earlier in September which fell below 2% for the first time in more than three years, mainly due to falling energy costs. Spain also saw a similar trend, with inflation falling to 1.7% due to reduced fuel, energy, and food costs.
Analysts were expecting a reading of 1.9% for each country. A separate ECB survey showed consumers expect prices to rise more slowly in the next few years.
Evidence of weakening inflationary pressures in Europe came alongside the release of the US Federal Reserve's preferred inflation measure, which showed the smallest annual increase since early 2021.
Slowing consumer price growth across the 20-nation bloc allowed the ECB to cut deposit rates twice this year, with most policymakers indicating a gradual downward path has begun. However, a surprising contraction in the private sector economy has increased bets that monetary policy easing will soon accelerate.
There were further signs of weakness on Friday in Germany, where the unemployment rate rose more than expected this month. A measure of economic confidence for the European zone, meanwhile, fell slightly, remaining at roughly the same level since December driven by declines in the industrial and retail sectors. However, consumer confidence rose slightly, as did services.
After this morning's data, the market raised expectations for another quarter-point cut in interest rates on October 17, with about an 80% chance of this scenario happening. Analysts at Goldman Sachs and BNP Paribas also revised their forecasts to a reduction in October, as did Bloomberg Economics. HSBC did so earlier this week.
