As the economy slows, Euro zone inflation drops to its lowest level in two years.

In September, the euro zone's inflation rate dropped to its lowest level in two years, signalling that the European Central Bank's steady diet of interest rate increases was working to tame inflationary trends, but at an increasing cost to economic development.

According to Eurostat's flash estimate released on Friday, consumer prices in the 20 countries that use the euro increased by 4.3% in September from 5.2% a month earlier, which is the weakest rate since October 2021.

The largest decrease in inflation since August 2020 occurred when it dropped to 4.5% from 5.3% when it excludes food, energy, alcohol, and tobacco, which is keenly followed by the ECB as a better indicator of the underlying trend.

These results were probably going to confirm the ECB's belief that it had increased interest rates sufficiently to reduce inflation to its 2% objective by 2025 after being caught off guard by a rise that began in 2021.

Last autumn, as a result of a combination of rising energy prices, supply chain problems following the pandemic, and increased government expenditure, price increases momentarily reached double-digit levels.

After a decade of seeking to boost inflation through an ultra-easy monetary policy, the ECB responded by raising its benchmark interest rate to a record-high of 4.0% from a low of minus 0.5% in less than a year. This turned off the money faucets.

All categories of growth grew more slowly in September, which resulted in a general decline in inflation. Energy costs also declined for a fifth consecutive month.

However, the impact of the sharpest tightening cycle in the ECB's almost 25-year history on the economy was starting to become more obvious, with certain indications pointing to a potential Eurozone recession.

According to figures released earlier on Friday, German retail sales unexpectedly decreased in August, and the largest economy in the Eurozone may be entering its second recession of the year.

(Sources: investing.com, reuters.com)