Inflation in the 20 European Union countries that use the euro fell sharply to 2.2 per cent in August, opening the door for the European Central Bank to cut interest rates as the ECB and the US Federal Reserve prepared to lower borrowing costs to support growth and jobs.

The August figure was down from 2.6 per cent in July, according to figures on Friday from European Union statistics agency Eurostat. Energy prices fell in August by 3 per cent, helping lower the overall figure, while inflation fell to 2 per cent in Germany, the eurozone's largest economy.