Euro area’s headline inflation eases in September on drop in energy prices

Euro area’s inflation rate eased in September owing to the development of energy prices. On a year-on-year basis, the preliminary euro area inflation slowed to 0.9 percent, below the 1 percent mark for the first time in nearly three years. Energy prices in the past month were 1.8 percent lower than one year ago. The inflation rate is expected to stay below 1 percent in the months ahead as well, noted Commerzbank in a research report.

The European Central Bank might not like the new data as they show that inflation continues to be lower than its target rate. The fact that core inflation has risen marginally to 1 percent will not be much of a consolation for policy makers. Core rate is still a bit distorted in September by this year’s change in the method of calculating package holidays prices in Germany. Therefore, the core inflation rate will still be distorted downwards by 0.1 percentage points in September.

“For these reasons, core inflation excluding package holidays currently better reflects the underlying price pressures. This rate has leveled off at a slightly higher level in recent months. It appears that companies are currently succeeding in passing on some of the higher wage costs to consumers. In view of the weak economy, however, it is questionable whether this trend will last”, added Commerzbank.