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Eurozone inflation falls to lowest rate in three years

image captionFalling energy prices were behind a fall in inflation

Eurozone inflation is running at its lowest rate in more than three years.

Consumer price inflation fell to an annual rate of 1.1% in September from 1.3% in August according to Europe's statistics agency Eurostat.

A fall in energy prices helped to ease inflation. Price rises in food, alcohol and tobacco moderated, also helping.

Economists say slowing inflation gives the European Central Bank (ECB) more freedom to help the eurozone's weak economic recovery.

The ECB targets an annual inflation rate of below, but close to 2%.

"The ECB has plenty of scope to loosen monetary policy further," said James Howat, European economist, at Capital Economics in a research note.

"At the very least, further action to boost liquidity in the banking sector looks increasingly likely."

Low rates

The ECB could boost the banking sector by offering eurozone banks a one-off chance to borrow at low rates for relatively long periods of time.

A similar operation at the end of 2011 offered banks cheap financing for three years and is credited with helping to keep the cost of borrowing low.

Mr Howat says it may announce a similar policy in its October policy meeting, or perhaps later in the year.

But economists say the ECB is unlikely to cut interest rates in October as economic data has shown signs of improvement.

It may also repeat its forward guidance that interest rates will remain at the present level, or be lower, for an extended period of time.

The ECB's main interest rate stands at 0.5%.

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