FRANKFURT, Germany – Annual inflation in the euro zone reached its lowest level since October 2021, dropping to 4.3% in September, according to flash figures released on Friday. This marks a decline from the 5.2% annual reading in August, while month-on-month inflation also decreased from 0.5% to 0.3%.

The European Central Bank’s decision to increase interest rates to a record level in September, with a key rate of 4%, preceded this recent drop in inflation. The bank’s move was described as a “dovish hike” as it expressed confidence that rates were at a level that could bring inflation to its target in the medium term.

Core inflation, which excludes energy, food, alcohol, and tobacco, fell to 4.5% year-on-year in September, down from 5.3% in August. Despite this decrease, the inflationary picture remains uneven across European nations. Germany, the largest economy in the euro zone, continues to struggle with an economic contraction and has an annual price rise of 4.3%, well above the target.

The European Central Bank’s macroeconomic projections predict that inflation will average 5.6% this year, with a decrease to 3.2% in 2024 and 2.1% in 2025. However, the recent surge in oil prices poses a risk to these inflationary forecasts.

The overall economic growth for the euro zone is expected to be modest, with the European Central Bank forecasting 0.7% growth this year and 1% and 1.5% growth over the next two years. Meanwhile, estimates from Eurostat, the EU’s statistics agency, report harmonized headline inflation rates of 5.6% in France, 3.2% in Spain, 8.9% in Slovakia, and 7.1% in Slovenia for September.

These figures highlight the ongoing challenges of managing inflation in the euro zone and the divergent economic situations across European nations.