Eurozone Inflation Drops Below 2%: Key Economic Indicators and Central Bank Decisions

In a significant economic update, the flash estimate of inflation in the Eurozone has fallen to 1.8% year-on-year (y/y) for September 2024, down from 2.2% in August. This decline is largely attributed to a notable decrease in energy prices, which saw a year-on-year drop of 6.0%, compared to a 3.0% decline in the previous month. Despite this, service prices are expected to maintain a robust growth rate of 4.0% y/y, slightly down from 4.1% in August.

In Romania, producer prices have stabilized at 2.7% y/y in August, while the unemployment rate has seen a slight increase to 5.5% y/y. These figures indicate a mixed economic landscape as the country navigates its fiscal policies and prepares for potential Eurozone membership. Central bank governor Isarescu emphasized the importance of fiscal consolidation before Romania can adopt the Euro, projecting that achieving a budget deficit of 3% of GDP, in line with Maastricht criteria, may take an additional five to seven years.

Meanwhile, the Polish central bank is set to announce its interest rate decision later today, with expectations pointing towards no change in the key policy rate, which currently stands at 5.75%. Poland remains unique in the region, having refrained from interest rate cuts in 2024, primarily due to inflation rates that exceed the central bank's target. The latest data indicates a substantial increase in Poland’s headline inflation, which rose to 4.9% y/y from 4.3% in August.

In other Central and Eastern European (CEE) countries, inflation trends vary. Croatia and Slovenia have reported decreases in inflation to 1.6% y/y and 0.6% y/y, respectively, while Slovakia also experienced a decline in HICP inflation. However, the overall economic outlook remains cautious, especially as the Czech Republic has increased its 2024 budget deficit by CZK 30 billion due to flood damages.

As the week progresses, CEE currencies have shown weakness against the Euro, while long-term yields have slightly decreased across most CEE nations. Investors and analysts will be closely monitoring these developments as they assess the economic stability and growth prospects in the region.