Inflation comes under control, ECB cuts interest rates further

This article was last updated on September 12, 2024

Canada: Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…
USA: Oye! Times readers Get FREE $30 to spend on Amazon, Walmart…

Inflation comes under control, ECB cuts interest rates further

Despite criticism from some board members, the European Central Bank cuts interest rates again. This now goes from 3.75 percent to 3.5 percent. The ECB thinks that inflation is under control enough to slow down somewhat.

In an explanation, the ECB points to the latest inflation figures from the euro zone. This amounted to 2.2 percent in August. With high interest rates, the ECB is trying to reduce price increases to a structural level of 2 percent.

The ECB expects inflation to be 2.5 percent for the whole of this year, especially because energy prices are likely to rise again later this year. Inflation should reach 1.9 percent in 2026 from 2.2 percent next year.

Interest rates lowered earlier this year

Three months ago reduced the ECB raised interest rates again for the first time since September 2019. It then went from a record 4 percent to 3.75 percent. Until then, the ECB actually raised interest rates in order to get the high price rises in the euro zone under control.

Due to the high price increases, Europeans have less left in their wallets every month. High interest rates make it more difficult to borrow money. This cools the economy and brings prices under control.

Tackling price increases

Prices in Europe shot up a few years ago due to the energy crisis following the Russian invasion of neighboring Ukraine. To curb this, the ECB created a record interest rate of 4 percent more difficult to borrow money.

But since inflation slowly fell to the 2 percent target this year, the ECB started to cautiously cut interest rates. Last month, inflation in the euro zone amounted to 2.2 percent, according to the European statistics agency Eurostat. That is the lowest level in three years.

Yet the situation differs per euro country. For example, inflation in the Netherlands in August was well above the European average at 3.3 percent. The highest price increases were in Belgium, where inflation stood at 4.5 percent. That is why more conservative ECB board members warned against cutting interest rates too quickly.