Euro area inflation below 2% for the first time since June 2021We change our ECB call

Euro area preliminary inflation came out at 1.8% Y/Y in Sept ember after 2.2% in August , first time below 2% since June 2021 and in line with consensus expectations . Core CPI slightly decreased to 2.7% Y/Y from 2.8% in August. Services prices are back to 4% Y/Y from 4.1% in August but continue to prove sticky . N on-energy industrial goods are stable at 0.4% Y/Y German inflation came out in line with expectations in September at 1,8% Y/Y  after 2 .0 % in August. Services inflation (national) was almost unchanged at 3 . 8% after four months at 3 . 9%, while goods inflation dropped under zero, at -0.3% Y/Y . E nergy prices continue to decline, with a -7.6% Y/Y drop after -5.1 % in August, while food inflation remain ed broadly unchanged at 1.6% Y/Y after 1.5%. In France, headline HICP dropped from 2 . 2% Y/Y in August to 1 . 5% in September, far below consensus expectations of 1.9 %.  With -1.2% M / M , the French HICP registered its higher monthly fall since 1990. Contributing to this drop, energy prices are down to -3.3% Y/Y from +0.4% Y/Y. But the most welcome news is the decrease in the services components from 3% to 2.5% Y/Y, partly due to the end of the Olympics that led to exceptional increases in transport fares and accommodation. Italian HICP dropped to 0.8% Y/Y in September from 1.2% in August, in line with consensus expectations . The slowdown was mainly due to the decrease in the prices of Regulated energy products (from +14.3% Y/Y to +10.0%), of Non-regulated energy products (from -8.6% Y/Y to -11.0%), of Services related to recreation, including repair and personal care (from +4.5% Y/Y to +4.0%) and of Services related to transport (from +2.9% Y/Y to +2.5%). C ore inflation was +1.8% Y/Y, down from +1.9% in August. Spa nish HICP went down to 1.7% Y/Y in September from 2. 4% Y/Y in August , far below consensus expectations (1.9%). According to the INE, this fall is mainly explained by the decrease in fuel prices and, to a lesser extent, food and electricity prices.  We change our ECB call and now expect a 25 bps rate cut in October even if it's not a done deal. As recent economic surveys and inflation numbers have clearly surprised to the downside, we think it gives enough arguments to the “doves” for another rate cut in October, especially after Lagarde's intervention yesterday and even though services inflation and wage growth are still too high. After October, we anticipate one 25 bps rate cut per meeting with a terminal rate at 2% reached by June 2025 (vs. 2.25% by July previously), should the service s inflation decrease.