FRANKFURT — Euro zone inflation has now spent four months below the European Central Bank’s 2 percent target, and the people who set the currency bloc’s interest rates have begun to argue, quietly and so far politely, about whether that is a problem to be fixed or a cushion to be enjoyed.
Consumer prices rose 1.7 percent in the year to September, the European Union’s statistics agency confirmed on Monday, down from 1.9 percent in August. Core inflation, which strips out energy and food, slowed to 2.0 percent. The E.C.B.’s deposit rate stands at 1.75 percent after seven cuts since the middle of 2024, and the bank has held it there since June, describing itself as “in a good place.”
Three officials involved in the deliberations, who spoke on the condition of anonymity because the discussions are confidential, described a Governing Council that is dividing into camps ahead of its Oct. 29 meeting. One, centered on the bloc’s southern and smaller economies, argues that a further quarter-point cut would insure against a slide toward the persistent undershoot that plagued the euro zone in the 2010s. The other, which includes several northern central bank governors, looks at an economy growing at about 1.2 percent a year, unemployment near a record low of 6.1 percent and wage growth still above 3 percent, and asks what, exactly, a cut would fix.
“This is a central bank that remembers two different nightmares,” said Annika Rehder, chief European economist at a Frankfurt asset manager. “Half of them remember 2014, when inflation went to zero and stayed there. The other half remember 2022, when it went to 10 and they were late. Each side thinks the other is fighting the last war.”
Much of the undershoot is imported. Energy prices fell 6.2 percent from a year earlier in September as oil slipped below $60 a barrel and European gas storage entered the winter 93 percent full. The euro, up about 9 percent against the dollar over 12 months, has made everything priced in dollars cheaper. And Chinese manufacturers, shut out of parts of the American market by tariffs, have been cutting prices in Europe: the cost of imported consumer goods fell 2.4 percent, the steepest decline in the data’s history.
Services inflation, at 3.1 percent, remains the sticking point. “If you take out energy and Chinese toasters, there is not much disinflation left,” said Tomás Ferreira Lobo, an economist at a Lisbon research institute. “The question is whether the council wants to look through that, or lean into it.”
Markets price roughly a 40 percent chance of a cut this month and fully price one by December. The bank’s own September projections show inflation returning to 1.9 percent in 2027, which hawks cite as evidence that nothing needs to be done and doves cite as evidence that the bank is forecasting its own failure. One official on the dovish side said the real argument was about asymmetry: at 1.75 percent, there is less room to respond to a shock than there was at 4 percent, and a cut now is cheaper than a larger one later. An official on the other side said the council “will not react to a few tenths of a point driven by oil.”
For Katrin Baumgart, who runs a bakery in the Sachsenhausen district, the debate is abstract. Flour is cheaper than it was, she said, but her two employees have had raises and her landlord has not become a central banker. “They say inflation is below target,” she said. “Tell that to my rent.”
A version of this article appears in print on Oct. 12, 2026, Section B, Page 13 of the European edition with the headline: With Inflation Below Target, Euro Zone Central Bankers Weigh Whether One More Cut Is One Too Many.
