Inflation in the eurozone slowed in October to a two-year low, but repeated increases in the key interest rate by the European Central Bank held back economic growth in member countries, Reuters reported, citing News.ro. .

According to preliminary data published on Tuesday by Eurostat, the statistical institute of the European Union, inflation in the Eurozone decreased from 4.3% in the previous month to 2.9% in October.

Core inflation, which excludes volatile food and energy prices, fell to 4.2% in October from 4.5% in September.

“Looking at the main components of inflation in the euro area, food, alcohol and tobacco should have the highest annual rate in October (7.5%, compared to 8.8% in September), followed by services (4.6%, against 4, 7% in September). September), non-energy industrial goods (3.5%, compared to 4.1% in September) and energy carriers (-11.1%, compared to -4.6% in September),” Eurostat said in a statement.

The agency also said on Tuesday that the eurozone economy shrank 0.1% in the third quarter, according to preliminary estimates, below consensus forecasts for GDP holding steady from the previous quarter.

The ECB expects the eurozone economy to grow by just 0.7% this year, 1% in 2024 and 1.5% in 2025.

Europe’s biggest economy, Germany, reported a quarterly drop in GDP of 0.1 percent in the third quarter, slightly better than the forecast of a 0.3 percent drop in a Reuters poll of economists.

Contraction or anemic economic growth in the Eurozone

The German economy shrank by 0.8% in price terms compared to the same period last year. Both the growth and inflation patterns remain very different across the single currency bloc of 20 countries. Latvia recorded the largest quarterly growth in the third quarter at 0.6%, followed by Belgium and Spain at 0.5% and 0.3% respectively.

The biggest quarterly drop was in Ireland at 1.8%, followed by Austria at 0.6%. The Eurozone has seen high inflation over the past 18 months, with the CPI peaking at 10.6% in October 2022.

The European Central Bank responded with a series of 10 consecutive key interest rate hikes that lifted the key interest rate to a record 4% before deciding to pause last week, despite big risks to energy costs from the Israel-Hamas war.

The ECB’s governing council reiterated that inflation is expected to remain “too high for too long” as domestic price pressures remain strong, but welcomed the slowdown in consumer price growth so far.

“The slowdown is strong and supported by a variety of factors, such as favorable base effects, a slowdown in wages, subdued inflationary pressures and modest inflation expectations for next year,” Mathieu Savary, chief European strategist at BCA Research, said in an email on Tuesday.