Inflation starting to fall

Euro-zone consumer price inflation has finally begun to fall, slipping from 4.0% to 3.8% in August. If the oil price remains at current levels, falling energy inflation alone should knock at least 1.5 percentage points off the headline rate over the next nine months. Admittedly, there is a risk that the gradual pass-through of sharp rises in producer prices will cause underlying inflation to pick up sharply. But with slowing activity probably helping to reduce the upward impact on core price pressures, we expect inflation to fall back to the ECB 2% price stability ceiling over the next year.