Illustration of food on the checkout belt at Leclerc supermarket in Valence, France, April 4, 2025.
Nicolas Guyonnet | AFP | Getty Images
Inflation in the euro zone fell to 1.7% in January, preliminary data from statistics agency Eurostat showed on Wednesday.
Economists polled by Reuters had expected inflation to fall to 1.7% from 2% in December.
Core inflation, which excludes the more volatile prices of energy, food, alcohol and tobacco, was 2.2% in January, down slightly from 2.3% in the year to December.
The latest data shows that the key inflation rate is now below the European Central Bank’s 2% target, meaning it is likely to avoid further rate cuts in the foreseeable future.
cautious approach
The central bank is expected to hold its next meeting on Thursday and keep interest rates unchanged at 2%. Economists expect no change in the coming months, but point to several factors that could change the ECB’s stance.
Lorenzo Codogno, founder and chief economist at Lorenzo Codogno Macro Advisors, said this could include escalating geopolitical tensions, a sharp appreciation of the euro, or slightly higher-than-expected inflation.
“The ECB remains in a ‘good position’ or ‘good situation’, but amid global uncertainty and vulnerability, ECB speakers may become more reluctant to use such language,” he said in emailed comments on Tuesday.
“We continue to see some downside risk to policy rates in the short term and some upside risk in the medium term. However, the basic scenario remains unchanged. There will be no change in 2026 and 2027, so the bar for action is high,” he said.
Paul Hollingsworth, head of DM economics at BNP Paribas Markets 360, agreed that the threshold for policy action this year is high and that the next move is likely to be a rate hike.
“We see high hurdles for any policy action, and stronger-than-expected underlying price pressures suggest that the ECB supports a long-term stability policy,” he said in emailed comments last week.
“We continue to see rate hikes in the third quarter of 2027 as the next move. By then, we expect to see further evidence of increasing domestic price pressures from increased defense and infrastructure spending,” he said.
