FRANKFURT, Germany (AP) -- Inflation that has plagued Europeans declined sharply in September to the lowest level in two years, strengthening hopes that consumers will get relief from costlier groceries, vacations and haircuts -- and that the European Central Bank won't have to further restrict the economy by raising interest rates from already-record highs.
The annual rate was 4.3 percent this month, a drop from 5.2 percent in August, and the lowest since October 2021, the European Union's statistics agency, Eurostat, said Friday. But recently higher oil prices are casting a shadow over prospects for quickly beating inflation down to the central bank's target of 2 percent.
Core inflation, which excludes volatile fuel and food prices, fell more than analysts expected -- to 4.5 percent from 5.3 percent. The ECB closely watches this figure to assess how inflation is coming down.
The fall in core inflation "reinforces our view that the ECB has finished raising interest rates," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics. He predicted that the overall inflation rate would tumble to 3.5 percent by the end of the year.
While inflation is lower in the U.S., a measure closely tracked by the Federal Reserve accelerated in August to 3.5 percent compared with a year earlier, from 3.4 percent in July, boosted mainly by higher gasoline prices.
Meanwhile, eurozone energy prices dropped 4.7 percent in September, while food price inflation remained uncomfortably high at 8.8 percent.
Readings across the major economies that use the euro currency were a mixed bag. Germany's annual inflation fell to 4.3 percent in September from 6.4 percent a month earlier, while Spain's increased to 3.2 percent from 2.4 percent.
Economists warn, however, that the large drop in Germany, the 20-country eurozone's largest economy, was exaggerated by a statistical quirk -- the end of a subsidized transportation ticket and a fuel subsidy in September 2022 that had raised consumer prices that month.
The latest inflation figures follow what may have been the final interest rate increase by the ECB in its swift series of hikes. It brought its benchmark deposit rate to a record high of 4 percent this month, up from minus 0.5 percent in July 2022.
ECB President Christine Lagarde said that if interest rate levels are maintained for a "sufficiently long duration," that would make a substantial contribution to returning inflation to 2 percent, a goal the bank does not expect to reach until 2025.
High prices have been holding back the European economy because people's paychecks don't go as far as they used to in covering their bills, forcing them to cut back on other spending.