Flash data from Eurostat on Tuesday (October 1) showed that eurozone inflation fell to 1.8% in September, below the European Central Bank's 2% target.

The reading was in line with expectations of economists polled by Reuters after annual inflation hit a three-year low of 2.2% in August.

Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, was 2.7%. It is forecast to be unchanged from 2.8% in August.

Data showed that euro zone services inflation fell to 4% in September from 4.1% in August.

The figures came after inflation in several key euro zone economies, including France and Germany, fell below the ECB’s 2% target in September. Preliminary data on Monday showed the unified inflation rate across Europe’s major economies fell more than expected to 1.8%, a higher than expected reading.

European Central Bank President Christine Lagarde said on Monday that policymakers are increasingly confident that inflation will return to their 2% target.

"Looking ahead, inflation may rise temporarily in the fourth quarter of this year as energy prices have previously fallen sharply at an annual rate, but the latest developments strengthen our confidence that inflation will return to target in time," she told a hearing of the European Parliament's Economic and Monetary Affairs Committee.

"We will take this into account at our next monetary policy meeting in October," Lagarde added.

Next steps for the ECB

Following her comments, Bank of America Global Research economists changed their expectations for the future path of ECB rate cuts, noting they now expect a cut in October.

Economists had previously predicted the ECB would keep rates steady this month but now said Lagarde’s comments were “the same rationale she used for the September cut”, suggesting a “quasi-definitive ‘path’ for October”.

On Tuesday, Deutsche Bank economists also raised their forecasts for the next ECB rate cut, which is due in December to October.

London Stock Exchange data showed earlier on Tuesday that markets were pricing in a 25 basis point cut for October.

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