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German inflation slowed toward the European Central Bank’s target in August, supporting the case for another rate cut next month. A report on Thursday showed price pressures in Spain also eased significantly, reaching their lowest level in a year.
Deflationary trends are expected to show up in the euro zone’s other two largest economies, France and Italy, when data is released on Friday. The euro zone is also set to release data, with analysts expecting growth in the region to fall back to 2.2%, while Bloomberg Economics forecasts a return to its 2% target.
With prices rising in line with ECB forecasts, wage pressures easing and economic momentum waning, Frankfurt officials, led by President Christine Lagarde, were cheered by the September rate cut. It would be the second rate cut since the first steps in June began to unwind a wave of rate hikes to tame record inflation.
However, policymakers also warned of possible setbacks in the coming months and stressed that their battle was not yet won.Underlying price growth remained strong, with growth in service costs in particular remaining a major concern.
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