Inflation rates in France and Spain drop sharply, while consumer expectations in the Eurozone show a downward trend. Analysts predict potential ECB action in October.

Inflation across key Eurozone economies has shown a marked decrease, potentially paving the way for monetary policy shifts. Recent data from France and Spain, coupled with consumer expectations, suggest a changing economic landscape that could prompt action from the European Central Bank (ECB).

France witnessed a sharper-than-expected decline in inflation this September. The Harmonized Index of Consumer Prices (HICP) fell to 1.5% year-over-year, down from 2.2% in August, significantly undercutting economist predictions of 1.9%. This represents a 1.2% month-over-month decrease in consumer prices.

Similarly, Spain experienced a substantial easing of inflationary pressures. The HICP rose by only 1.7% annually in September, a notable drop from August's 2.4% and below the forecasted 2.0%. The national Consumer Price Index (CPI) also reflected this trend, rising by 1.5% compared to 2.3% in the previous month.

These developments coincide with shifting consumer sentiment across the Eurozone. The ECB's latest consumer survey reveals a decline in inflation expectations, with consumers anticipating a 2.7% increase in prices over the next year – the lowest level since September 2021. However, the three-year outlook remains above the ECB's 2% target at 2.3%.

In light of these trends, BNP Paribas Markets economists Paul Hollingsworth and Joao Vieira Pinto suggest that the ECB may place greater emphasis on the deteriorating short-term growth prospects for the Eurozone. They predict a potential 25 basis point interest rate cut as early as October 17th.

In short: brrrrrr, Chrissie