Inflation in the Euro zone decreased to 1.8% in September, falling below the European Central Bank's target of 2%.

• In September, Euro zone inflation decreased to 1.8%, falling below the European Central Bank's 2% target, according to flash data from Eurostat.
• The reading was in line with the expectations of previously polled economists by Reuters.
• The core inflation rate, excluding energy, food, alcohol, and tobacco prices, was 2.7%, slightly below expectations.

In September, Euro zone inflation decreased to 1.8%, falling below the European Central Bank's 2% target, according to flash data from Eurostat.

Inflation in August hit a three-year-low of 2.2%, and the reading was in line with the expectations of economists polled by Reuters.

The core inflation rate, excluding energy, food, alcohol, and tobacco prices, was 2.7%, the same as the forecasted rate for August.

The inflation rate in the euro zone decreased to 4% in September from 4.1% in August, according to the data.

Inflation in several key euro zone economies, including France and Germany, fell below the 2% European Central Bank target after September. The harmonized inflation rate in Europe's leading economy dropped by more than expected to 1.8% on an annual basis, preliminary data showed Monday.

Inflation outlook

In the coming months, there may be a brief increase in inflation, but the headline reading is expected to remain below 2% in the coming year, according to Franziska Palmas, senior Europe economist at Capital Economics, who made this statement in a note on Tuesday.

ING's chief economist for the Netherlands, Bert Colijn, stated that a renewed increase in inflation is not definitively certain.

On Tuesday, he noted that while a bounce back in the fourth quarter was anticipated, the extent to which this can occur is uncertain due to the rapid drop in petrol prices resulting from falling oil prices.

Next ECB steps

On Monday, Christine Lagarde, the President of the European Central Bank, stated that policymakers were growing more optimistic about achieving the 2% inflation target.

Inflation may temporarily rise in the fourth quarter due to the absence of previous energy price drops from annual rates, but recent developments boost our confidence that it will return to the target in a timely manner, as stated at a European Parliament hearing.

Lagarde stated that the ECB will consider the matter in their next monetary policy meeting in October, which is scheduled for October 17.

According to Palmas of Capital Economics, if headline inflation falls below 2%, the ECB will likely cut rates in October, despite the persistence of elevated services inflation.

The ECB takes into account economic growth and inflation falling below the 2% target, as stated by ING's Colijn.

"The ECB's decision to keep interest rates restrictive for too long could lead to inflation falling below its 2% target, as the economy is already slowing. However, a cut is not yet a certainty, as the ECB may move faster to address the pressure on growth."

ECB interest rate cuts are now expected by Bank of America Global Research economists to occur in October, as their expectations for the path ahead have been altered by the comments of a certain individual.

The central bank's rates would remain unchanged this month, according to the previous forecast of economists. However, after Lagarde's comments, the economists now believe that the central bank will likely cut rates in October, as she used the same justification for the September cut.

On Tuesday, Deutsche Bank economists revised their forecast for the next ECB rate cut from December to October.

The latest euro zone inflation data released on Tuesday led markets to widely price a 25-basis-point cut in October, as shown by LSEG data.