Euro-zone inflation rate falls to lowest in more than a year

Brussels: Euro-area inflation fell further below the European Central Bank's 2% target, underscoring the policy dilemma facing officials as they weigh their next steps on interest rates.

Consumer prices rose 1.7% in January from a year earlier, slowing from the previous month and matching the median estimate in a Bloomberg survey. It was the weakest reading since September 2024.

Core inflation - which strips out volatile food and energy prices - unexpectedly eased to 2.2%, the lowest since October 2021. Services inflation, a key gauge for policymakers, slowed to 3.2%, according to Eurostat.


The data arrive as the European Central Bank begins its first interest-rate meeting of 2026. Economists widely expect borrowing costs to be kept unchanged at 2% for a fifth consecutive meeting on Thursday.

While inflation is projected to return to the ECB's target after undershooting this year and next, a minority of policymakers remain concerned about a more persistent downside risk. The euro's recent rally could amplify those fears.

At the same time, some officials continue to worry about stubborn price pressures in services. ECB President Christine Lagarde has cautioned that any moderation may be delayed if wage growth proves slow to cool.

Inflation trends across the euro area's 21 member states remain uneven. German inflation came in at 2.1%, slightly above expectations, while France surprised with a five-year low of just 0.4%.

Stronger economic growth could eventually push prices higher. The region expanded by 0.3% in the final quarter of 2025, slightly faster than forecast. Still, risks persist, highlighted by renewed global trade tensions after Donald Trump revived tariff threats linked to Greenland.

Given the uncertainty, ECB policymakers reiterated in December the need for full flexibility in future rate decisions.