Headline inflation cools to 2%
Euro zone inflation eased to 2% in December, according to preliminary data released by Eurostat, aligning precisely with the European Central Bank’s official target. The reading marks a slight slowdown from November, when inflation stood at 2.1%, and confirms expectations that price pressures are continuing to moderate across the currency bloc.
The latest figures suggest that the disinflation trend seen throughout much of last year remains intact, reinforcing confidence that inflation is no longer accelerating despite lingering economic uncertainty.
Underlying price pressures continue to ease
Core inflation, which strips out volatile components such as energy, food, alcohol and tobacco, fell to 2.3% year on year in December, compared with 2.4% the previous month. Services inflation also cooled slightly, easing to 3.4% from 3.5% in November.
These measures are closely watched by policymakers as indicators of more persistent price pressures within the economy. The continued moderation suggests that domestic inflation dynamics are gradually coming under control.
ECB policy outlook remains cautious
The European Central Bank kept its key deposit facility rate unchanged at 2% in December, marking the fourth consecutive meeting without a move. The central bank last cut rates in June, part of an easing cycle that lowered borrowing costs from a peak of 4% reached in 2024.
While senior ECB officials have signaled that the rate-cutting cycle may be nearing its conclusion, the institution has repeatedly stressed that future decisions will be taken on a meeting-by-meeting basis and will remain fully data dependent.
Markets steady as focus turns to 2026
Financial markets showed little immediate reaction to the data, with the euro and European equities largely unchanged. However, inflation settling at target levels may strengthen expectations that additional rate cuts could be considered later in 2026 if economic conditions warrant further support.
Analysts note that while inflation has hovered close to 2% for much of the past year, the latest data reinforce the case for a more accommodative stance. With inflation stable and growth concerns persisting, policymakers may gain greater flexibility to support the economy without risking a renewed surge in prices.