Eurozone inflation eased to 1.7% in January, according to preliminary data released Wednesday by Eurostat. Economists surveyed had also anticipated the rate would fall from December’s 2% to 1.7%.
Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, came in at 2.2% in January, slightly lower than December’s 2.3%. The data indicate that inflation in the euro area is now below the European Central Bank’s (ECB) 2% target, reducing the likelihood of immediate rate cuts.
ECB stance remains cautious
The ECB is scheduled to meet on Thursday and is widely expected to keep its benchmark interest rate at 2%. Economists predict rates are likely to remain unchanged in the near term, though certain developments could influence future policy, including rising geopolitical tensions, a sharp appreciation of the euro, or unexpectedly high inflation readings.
Lorenzo Codogno, founder and chief economist at Lorenzo Codogno Macro Advisors, said the ECB is in a “comfortable position,” but officials may exercise more caution given global uncertainties. He added that while there is a slight risk of rate reductions in the short term, medium-term pressures could push for increases, though the baseline expectation remains for no change through 2026 and 2027.
Paul Hollingsworth, head of DM Economics at BNP Paribas Markets 360, echoed the view that the bar for action is high. He noted that stronger-than-expected underlying inflation could justify a cautious approach, with the ECB likely holding steady for an extended period. Hollingsworth forecast that the next policy move could be a rate hike in the third quarter of 2027, as domestic price pressures intensify due to higher defence and infrastructure spending.