Euro zone inflation falls to lowest in two years

STORY: Inflation in the euro zone fell to its lowest level in two years in September.

That suggests the European Central Bank's (ECB) steady diet of interest rate hikes is succeeding in curbing runaway prices.

However, this will have a growing cost for economic growth.

Consumer prices in the 20 countries that share the euro rose by 4.3% in September, compared to 5.2% in August, according to Eurostat's flash readings.

The slowest pace since October 2021.

Inflation excluding food, energy, alcohol and tobacco fell to 4.5% from 5.3%, the biggest drop since August 2020.

The readings are likely to strengthen the ECB's conviction that it has raised interest rates far enough to bring down inflation to its 2% target by 2025.

However, the effect on the economy is becoming increasingly apparent.

Some indicators even point to a possible recession in the euro zone.

German retail sales fell in August and unemployment rose in September, confirming the euro zone's biggest economy may be heading for its second recession this year.

So far, the ECB is sticking to its expectations of an economic rebound next year.

But that outlook was predicated on the external environment not deteriorating much further and investment remaining resilient, according an economist.