Eurozone inflation plunges to three-year low of 2.2% in August

Inflation plunged to 2.2%, in line with forecasts and down from July's 2.6%. The news came as Germany and Spain both reported bigger than expected reductions on Thursday.

Economists expect a quarter-point cut in the ECB’s benchmark interest rate to 3.5% when policy makers meet on September 12. The ECB cut rates by the same margin in June as inflation moves towards the central bank's 2% target.

"For the ECB these data are broadly in line with the June expectations for the third quarter on the headline, but core inflation is looking somewhat stronger than the central bank expected. Still, we think a rate cut by the ECB in two weeks’ time is a decent bet," said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

"Eurozone inflation is now just a touch above target, making it difficult for the bank to justify its current extremely restrictive monetary stance. Interest rates were raised to their current level when inflation was over 5% last year and wage growth figures are rolling over."

Services inflation was still higher in August at 4.2%, compared with 4.0% in July, followed by food, alcohol & tobacco at 2.4%, from 2.3%, non-energy industrial goods, 0.4%, compared with 0.7% and energy -3.0% from 1.2%.

However, in a separate release, eurozone unemployment also fell slightly unexpectedly to 6.4% from 6.5%, which may cause concerns that labour shortages could lead to inflationary pressures.

Reporting by Frank Prenesti for Sharecast.com