Euro area inflation eases in January as softer price pressures take hold
Inflation across the euro area eased in January, signalling the start of a period of softer price pressures that many economists expect to persist well into the year ahead. The latest figures suggest that the European Central Bank is likely to maintain its current interest rate stance for the foreseeable future.
Data showed that annual inflation in the 21 countries using the euro fell to 1.7% in January, marking its lowest level since September 2024. The decline was largely driven by lower energy costs and matched market expectations, reinforcing the view that headline inflationary pressures are cooling.
Measures of underlying inflation also showed a modest improvement. Core inflation, which excludes more volatile items such as energy, food, alcohol and tobacco, edged down to 2.2% from 2.3% in December. This easing reflected continued moderation in services prices, an area that had remained relatively resilient in recent months.
Taken together, these developments are unlikely to prompt any immediate policy response from the ECB. The central bank is widely expected to leave interest rates unchanged at its upcoming meeting and to hold that position through the remainder of the year. Policymakers have repeatedly emphasised the need for sustained evidence that inflation is firmly under control before making any adjustments.
The ECB currently forecasts that inflation will run slightly below its 2% target during this year and next, before gradually returning to target levels in 2028. Inflation has hovered close to 2% for over a year, following a period of sharp price increases linked to the post-pandemic economic rebound and the surge in energy costs after Russia’s invasion of Ukraine in 2022.
There remains debate among economists and policymakers about the direction of the ECB’s next move. Some argue that weakening price pressures may open the door to a future rate cut, while others believe persistent risks could still warrant a tightening bias.
Recent strength in the euro against the US dollar has added to speculation about possible rate reductions. Currency movements have been influenced by uncertainty surrounding US economic policy and concerns about the independence of the Federal Reserve, factors that continue to shape global financial markets.
For businesses and households across the euro area, the easing inflation outlook offers some relief, although borrowing costs and broader economic conditions remain key considerations in the months ahead.
Disclaimer: This article is based on publicly available information and is intended for general guidance only. While every effort has been made to ensure accuracy at the time of publication, details may change and errors may occur. This content does not constitute financial, legal or professional advice. Readers should seek appropriate professional guidance before making decisions. Neither the publisher nor the authors accept liability for any loss arising from reliance on this material.
