What is the story about?
Eurozone inflation eased to 2 per cent in December from 2.1 per cent in November, data released on Wednesday showed, bringing price growth exactly in line with the European Central Bank’s medium-term target of 2 per cent and reinforcing signs that inflationary pressures across the bloc are steadily cooling.
The moderation in headline inflation was largely driven by softer energy prices, which more than offset persistent increases in food costs. Crucially, underlying price pressures also showed signs of easing. Core inflation—which strips out volatile components such as food and energy—dipped to 2.3 per cent in December from 2.4 per cent a month earlier, suggesting that broader inflation dynamics are continuing to normalise.
The outturn was in line with expectations, with a Reuters poll of economists having forecast headline inflation at 2 per cent for December.
The latest data strengthen the ECB’s assessment that inflation is now on a sustainable path towards price stability. According to the central bank’s projections, inflation is expected to fall below the 2 per cent target in 2026 and 2027 before gradually returning to target levels by 2028, a phase the ECB has described as “the good place.”
Despite the improving inflation outlook, the ECB has so far opted for caution. In December, it kept its deposit rate unchanged at 2 per cent for the fourth consecutive meeting, signalling that policymakers remain focused on ensuring inflation is durably anchored at the target before making any shift in policy stance.
For now, the central bank appears comfortably positioned, with easing price pressures providing reassurance but not yet enough to prompt an immediate debate on rate cuts or hikes. Policymakers are expected to closely monitor incoming inflation data in the coming months for clearer evidence of a sustained trend before recalibrating monetary policy.
The moderation in headline inflation was largely driven by softer energy prices, which more than offset persistent increases in food costs. Crucially, underlying price pressures also showed signs of easing. Core inflation—which strips out volatile components such as food and energy—dipped to 2.3 per cent in December from 2.4 per cent a month earlier, suggesting that broader inflation dynamics are continuing to normalise.
The outturn was in line with expectations, with a Reuters poll of economists having forecast headline inflation at 2 per cent for December.
The latest data strengthen the ECB’s assessment that inflation is now on a sustainable path towards price stability. According to the central bank’s projections, inflation is expected to fall below the 2 per cent target in 2026 and 2027 before gradually returning to target levels by 2028, a phase the ECB has described as “the good place.”
Despite the improving inflation outlook, the ECB has so far opted for caution. In December, it kept its deposit rate unchanged at 2 per cent for the fourth consecutive meeting, signalling that policymakers remain focused on ensuring inflation is durably anchored at the target before making any shift in policy stance.
For now, the central bank appears comfortably positioned, with easing price pressures providing reassurance but not yet enough to prompt an immediate debate on rate cuts or hikes. Policymakers are expected to closely monitor incoming inflation data in the coming months for clearer evidence of a sustained trend before recalibrating monetary policy.
