Eurozone Inflation Falls to ECB Target -- 2nd Update

By Don Nico Forbes

The annual rate of inflation in the eurozone fell to the European Central Bank's target in December, underpinning views that monetary policy will remain stable in the near future.

The European Union's statistics agency said Wednesday that consumer prices in the currency bloc were 2% higher than a year prior, slowing from a 2.1% increase in November, and in line with a consensus of economists polled by The Wall Street Journal.

Services prices increased at a slightly slower pace to 3.4% after three straight months of faster rises, indicating some key price pressures in the currency area are dissipating.

The data comes on the heels of lower-than-expected inflation prints on Tuesday from Germany and France, the eurozone's two largest economies.

After the central bank held the deposit rate at 2% at its last meeting on Dec. 18, President Christine Lagarde reiterated that policy remains in a "good place."

"December's inflation figures are unlikely to move the dial for the ECB, especially with service price inflation remaining well above 3.0%," Diego Iscaro, head of European economics at S&P Global Market Intelligence, said.

Most economists expect the ECB to remain on hold in 2026.

The central bank forecasts the inflation rate averaging at 1.9% in 2026 after 2.1% in 2025, hovering a little under target until averaging at 2% in 2028. Slowing inflation comes even though the ECB recently upgraded its growth forecasts.

Capital Economics expects the inflation rate to fall below ECB estimates, driven by lower energy prices, a decline in food inflation, and slower wage growth. This could leave the door open for rate cuts toward the end of the year, Jack Allen-Reynolds, deputy chief eurozone economist, said.

Still, the Organization for Economic Cooperation and Development said in December that the ECB needs to remain prudent to ensure inflation remains on target, with labor shortages and additional fiscal stimulus adding upward pressure to prices.

Germany plans to ramp up government spending this year in an effort to revive its stagnating economy, though economists caution this could stoke inflation.

Across the Atlantic, the Federal Reserve is hesitant to adjust rates too quickly in 2026 amid lingering price concerns. While U.S. consumer prices rose at a slower pace in November, economists warned that this data was distorted by the government shutdown. The Fed cut rates at each of its final three meetings of 2025.

Write to Don Nico Forbes at [e-mail]

(END) Dow Jones Newswires

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