Headline inflation in the Irish economy fell to a three-year low of just 0.2 per cent in September, according to the latest flash estimate for the harmonised index of consumer prices (HICP).
This was down from 1.1 per cent the previous month and below the euro area average of 2.2 per cent. The Central Statistics Office (CSO) noted the 0.2 per cent rate of price growth was the lowest level of HICP inflation recorded since March 2021.
The weaker level of inflation was driven mostly by falling energy prices.
The CSO said energy prices were estimated to have decreased by 1.4 per cent in the month and fallen by 14.1 per cent over the 12 months to September.
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Food prices are estimated to have remained unchanged in the last month and risen by 1.5 per cent in the last 12 months.
The HICP excluding energy and unprocessed food, also known as the underlying or core rate of inflation, was, however, still by 1.8 per cent since September.
The Irish numbers will feed into wider euro zone inflation data due out on Tuesday. The figures are expected to pave the way for another European Central Bank (ECB) interest rate cut before the end of the year.
ECB president Christine Lagarde said Frankfurt is becoming more optimistic that it will be able to get inflation under control, and will reflect on that at its October decision on interest rates.
The president’s comments to MEPs in the European Parliament in Brussels on Monday are the strongest hint yet from her of possible momentum gathering among officials toward a cut.
“Inflation might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates, but the latest developments strengthen our confidence that inflation will return to target in a timely manner,” Ms Lagarde said. “We will take that into account in our next monetary policy meeting in October.”
German bonds pared declines as Lagarde said the economy is facing headwinds, with the 10-year yield trading flat on the day at 2.13 per cent after reaching 2.18 per cent earlier. Traders slightly added to bets on a quarter-point interest-rate cut from the ECB in October, with money markets implying a 85 per cent chance of such a move.
The latest data on consumer prices, published earlier Monday, showed slowdowns in Italy and Germany, following numbers last week in Spain and France pointing in the same direction. That reinforces the idea that a historic spike in inflation has been contained.
The remarks are Ms Lagarde’s first since business surveys last week by S&P Global revealed a much weaker-than-expected performance for the euro zone’s 20-nation economy. That prompted markets to ramp up bets on a second straight cut in borrowing costs on October 17th.
“Looking ahead, the suppressed level of some survey indicators suggests that the recovery is facing headwinds,” Ms Lagarde said. “We expect the recovery to strengthen over time, as rising real incomes should allow households to consume more.”
Following September’s decision to cut rates for a second time during this cycle, several Governing Council members indicated that they would rather wait for more complete data on the economy before acting again. The question now is whether the deterioration in the growth outlook is enough to deviate from that path and bring forward monetary easing. -Additional reporting Bloomberg
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