Euro zone inflation eased to 2% in December, returning squarely to the European Central Bank’s long‑term target and reinforcing signs that price pressures across the bloc continue to normalize after several turbulent years.

The flash estimate from Eurostat shows headline inflation dipping from 2.1% in November, in line with economists’ expectations and marking one of the most stable readings since the post‑pandemic inflation surge began.

Core Inflation Also Slows
Core inflation — which excludes volatile food and energy components — fell to 2.3%, down from 2.4% in November.
This is the lowest level since late summer and reflects easing pressures in services and industrial goods.

On a monthly basis, consumer prices rose 0.2%, rebounding from a 0.3% decline the previous month.

Energy Prices Continue to Pull Inflation Down
The December reading reflects a familiar pattern:

Energy prices fell 1.9% year‑on‑year, continuing to act as the main drag on headline inflation.

Services inflation remained the strongest component at 3.4%, though slightly lower than November’s 3.5%.

Food, alcohol, and tobacco inflation edged up to 2.6%.

Non‑energy industrial goods rose just 0.4%, indicating subdued goods‑sector price pressures.

ECB Expected to Hold Rates Steady
With both headline and core inflation stabilizing near target, financial markets see little urgency for the ECB to adjust policy at its next meeting in February.
Analysts note:

The ECB has signaled it is in no hurry to change its 2% deposit rate, which it has held steady for months.

Markets assign a 97% probability that rates will remain unchanged in February.

The odds of a rate cut later in 2026 stand near 45%, while a hike is considered unlikely.

Policymakers remain cautious, warning that wage dynamics, global energy markets, and uneven demand across member states still pose risks to the inflation outlook.

A Return to Stability — With Caveats
Economists say the latest data confirms that the extreme volatility of recent years is fading. Still, the ECB faces a delicate balancing act:

Falling energy costs and a strong euro could push inflation lower.

Rising defense spending, tight labor markets, and geopolitical tensions could push it higher.

For households, the softer inflation backdrop offers some relief after years of eroded purchasing power. For businesses, stable prices provide a more predictable environment for investment and hiring decisions.