Euro area annual inflation eased to 1.7% in January 2026, down from 2.0% in December, reaching its lowest level since September 2024. The figure aligned with market expectations and bolstered disinflationary sentiment, causing the euro to strengthen above $1.20. Easing price pressures increases the likelihood of a monetary policy pivot by the European Central Bank.

Services inflation fell to 3.2%, the lowest rate in four months, while energy prices dropped by 4.1% following a 1.9% decline the previous month. Core inflation, excluding energy, food, alcohol, and tobacco, stood at 2.2%, its lowest since October 2021, surpassing forecasts of 2.3%. Among the bloc’s major economies, slowdowns were recorded in France (0.4%), Spain (2.5%), and Italy (1.0%), although inflation in Germany rose to 2.1%.

An additional disinflationary factor was the drop in producer prices. In December 2025, they decreased by 0.3% month‑on‑month and by 1.7% year‑on‑year, marking the fourth consecutive decline. This confirms the weakening of persistent price pressures in the region, creating an environment conducive to interest rate cuts by the ECB.