Inflation in the euro area decelerated in January, official data showed on Wednesday, marking the weakest annual pace since September 2024. Consumer prices across the 21 countries that share the euro rose 1.7% year on year in January, a decline attributed largely to falling energy costs. The headline print matched economists' forecasts.
Beyond the headline, a key measure of underlying inflation that removes volatile components - energy, food, alcohol and tobacco - ticked down to 2.2% in January from 2.3% in December. That shift reflected continued easing in the services sector, which has been a central driver for persistent inflation pressures in recent periods.
Taken together, the readings are widely viewed as insufficient to trigger an imminent response from the European Central Bank. The ECB is expected to leave interest rates unchanged on Thursday and to maintain that stance through the remainder of the year. Central bank projections indicate inflation will slightly undershoot the 2% target this year and next before returning to target in 2028.
Inflation has hovered around the 2% level for at least a year, following an earlier wave of price increases linked to the economy's rebound from the COVID-19 pandemic and to disruptions from Russia's invasion of Ukraine in 2022, which pushed up fuel costs.
Economic opinion is not unanimous on what will come next for monetary policy. Economists are split on whether the ECB's next move will be a rate cut or a hike, and some policymakers have recently said both outcomes are equally likely. Meanwhile, market commentary about potential rate easing has been fed in part by a recent appreciation of the euro against the dollar, a move that has been attributed in part to reactions to U.S. President Donald Trump's unpredictable policymaking and to concerns about the Federal Reserve's independence.
These January readings underscore a transition toward softer price growth in the euro area, with energy-led declines lowering the headline rate and ongoing moderation in services pushing down the core measure. Most forecasters expect this softer patch to last at least a year, a projection that helps explain the current expectation for policy stability at the ECB.