Euro Zone Inflation Decline

FRANKFURT (Reuters) – Euro zone inflation is declining, yet the European Central Bank (ECB) must remain vigilant to ensure that price growth stabilizes at its 2% target over the medium term, stated Bundesbank President Joachim Nagel on Tuesday.

The ECB has cut interest rates twice this year, and further easing in October and December is nearly priced in, suggesting that investors foresee a steady decline in rates after reaching record highs.

"Fortunately, inflation expectations are now well anchored again," Nagel mentioned in a speech. "Even if inflation rates are likely to rise again somewhat in the coming months due to base effects, inflation is fundamentally on the decline."

Several policymakers have indicated support for an October 17 rate cut, with only a few members of the 26-member Governing Council opposing, suggesting a cut will be relatively uncontroversial. The real discussion now focuses on plans for December.

Nagel cautioned that the battle against inflation is not yet decided, pointing out that underlying price pressures remain too high, and core inflation is still above 2%.

"Core inflation and particularly developments in service prices are not yet satisfactory," Nagel highlighted. "We must therefore remain vigilant to ensure that the inflation rate settles at 2% in the medium term."