What can Rishi learn from the EU’s plummeting inflation rate?

Good headlines are coming out of the Eurozone this morning, as the inflation rate slowed to 2.9 per cent in October. This is a spectacular fall from its double-digit peak last October, when the rate sat at over 10 per cent. Today’s news brings inflation to a stone’s throw away from the European Central Bank’s target of 2 per cent. But it’s not without trade-offs.

Alongside today’s inflation news, we have also learned that growth across the Eurozone took a hit, averaging a 0.1 per cent contraction between July and September this year. This dip was worse than the consensus, which expected to see a small uptick in GDP. Some growth seen in countries like France and Belgium were outweighed by contractions elsewhere – notably in Germany. The biggest economy in Europe now finds itself halfway towards a recession (two consecutive, quarterly contractions) with business output contracting. 

Weaker growth is often the price paid for getting the inflation rate down.