Christine Lagarde must be pleased. At the last meeting of the European Central Bank, the President of the institution distanced herself from her American counterpart, Jerome Powell, by announcing not a pause in rate hikes, but a further increase, when the FED decided to mark time. 
 
In mid-September, the ECB raised its key rates for the 10th consecutive time, taking the deposit rate to 4% - a level not seen since the creation of the euro in 1999 - and the refinancing and marginal lending rates to 4.50% and 4.75% respectively. At the time, the bank justified its decision by pointing to the continuing surge in prices on the continent. 
 
The recent downturn in energy (-11% year-on-year and -4.6% in September), food and manufactured goods proved this policy right. After rising by 4.3% in September and 5.2% in August, inflation was 2.9% in October for all countries that have adopted the single currency, its lowest level since July 2021.  
 
But the downside to this good news - and there is some - is the slowdown in growth in the Eurozone, and the fact that this easing of inflation is not necessarily sustainable. Indeed, if inflation is slowing, it's also because demand is sluggish, and the continent's growth is also weakening: it grew by a meagre 0.1% in Q3. What's more, all it would take is a rebound in oil prices - highly likely in these troubled times in the Middle East - for inflation to take off again. 
 
Finally, it should be noted that analysts expect inflation to fall slowly to below 2%, with wage increases and a job market that should remain solid. As for a rate cut, it is unlikely to take place before mid-2024: central bankers will want to secure their action and not let inflation take off again.
Drawing by Amandine Victor