(Bloomberg) -- German inflation slowed markedly — and more than expected — in October as Europe’s biggest economy struggles to grow.

At 3%, price pressures are the weakest since June 2021, the statistics office said Monday. Economists had predicted a moderation to 3.3%. The result underpins the European Central Bank’s argument that a record bout of interest-rate increases is starting to show its effects.

A sharp retreat is also expected in Italy and, to a lesser extent, in France and in the 20-nation euro zone, with data due Tuesday. Earlier Monday, Spanish figures showed a slight pickup caused by electricity costs.

Bloomberg Economics’ Nowcast suggests another deceleration in inflation, to 2.8%, is due for November.

“The euro area economy remains weak,” ECB Vice President Luis de Guindos said Monday in a speech in Madrid. “Recent indicators point to continued weakness in the near term.”

ECB President Christine Lagarde cited expectations for a further easing in inflation as one reason why policymakers paused rate hikes last week following 10 consecutive moves. Those increases are being transmitted “forcefully” into financing conditions, she said, damping demand and helping officials to return to their 2% goal.

What Bloomberg Economics Says...

“The lion’s share of this decline can be attributed to energy costs but contributions from core categories slightly eased as well. This confirms our assessment that disinflation in the euro area will give the ECB little reason for another rate hike in the near future.”

—Martin Ademmer, economist. Click here for full REACT 

Germany’s economy is already experiencing some of those effects. Third-quarter output shrank 0.1%, less than anticipated, weighed down primarily by a pullback in household spending.

Equipment investment increased, meanwhile, with Paolo Grignani, an economist at Oxford Economics, suspecting military spending “might be behind it.”

Most firms are struggling to bounce back from an energy-induced downturn last winter, held back by higher borrowing costs and weak export demand. Chemical giant Lanxess AG has announced it will cut 7% of its workforce this month, while Volkswagen AG said it’ll double down on savings to boost profitability.

The Bundesbank had flagged the third-quarter contraction in its latest monthly report. It also said it expects headline inflation to slow further in the coming months, even as the core rate that excludes energy and food may remain above 4% in the near future due to pressures in services sector.

--With assistance from Barbara Sladkowska and Joel Rinneby.

(Updates with Bloomberg Economics Nowcast in fourth paragraph.)

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