Key Takeaways
- Eurozone flash inflation in February is forecast to be in line with January’s final reading.
- Perceived inflation is higher than the official data suggests, shaping expectations about future inflation.
- With inflation stabilizing, economists see the ECB holding interest rates steady in its March 19 meeting.
Preliminary eurozone consumer prices, due March 3, are forecast to be 1.7% higher than in February 2025, according to FactSet consensus estimates. That is in line with Eurostat’s final inflation reading of 1.7% for January, and below the European Central Bank’s medium-term inflation target of 2%.
“1.7% would be no bad result, representing the lowest rate in more than a year and sitting below the European Central Bank’s 2% targeted level,” says Michael Field, Morningstar’s chief European markets strategist.
Core inflation, which excludes volatile components such as energy and food costs, is expected to have risen by 2.3% year over year in February, up from January’s figure of 2.2%.
“While this is now 30 basis points ahead of the targeted rate, it fell markedly in 2025, so investors won’t get overly excited about this single data point,” says Field, adding that the ECB will still consider this very much under control.
Morningstar’s strategist doesn’t expect any movement from equity markets on the back of the inflation announcement.
Breaking down the consumer price index by components, Goldman Sachs expects services inflation to tick up slightly to 3.19% year over year. Energy price deflation is likely to have declined to -3.0% from January’s figures of -4.0% on annual basis, while food, alcohol and tobacco price increases are expected to tick down to 2.3% year over year in February.
Some economists expect that February inflation will partially undo January’s sharp slowdown. Oliver Rakau, chief Germany economist at Oxford Economics, sees inflation rising to 1.9% year over year in February from 1.7% at the start of the year. “This is mostly for two reasons. First, oil prices have risen over the past month or two and are now feeding through to consumer energy prices for petrol and the like. Second, January inflation was somewhat understated due to favorable base effects especially as regards consumer energy prices. With that effect falling out of the year-on-year comparison, inflation is lifted a little bit”.
Will Inflation Go Up in 2026?
According to December’s ECB economic forecasts, overall inflation is expected at 1.9% in 2026, 1.8% in 2027 and 2.0% in 2028. For core inflation, ECB staff expect an average of 2.2% in 2026, 1.9% in 2027, and 2.0% in 2028.
In her speech at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament on Feb. 26, the ECB’s President, Christine Lagarde, said that the “efforts to bring inflation down have been effective,” recalling that it was at 10.6% in October 2022.
Goldman Sachs predicts core inflation slightly weaker than the ECB staff December projections. “We continue to see core inflation at a soft 2.1% in 2026, 1.8% by end-2026 and 1.9% by end-2027,” they said in a note on Feb. 26, adding that headline inflation is expected “below target throughout 2026 and 2027.”
According to Rakau of Oxford Economics, “risks are skewed a little to the downside.” If inflation will be weak also in February “that would be of significance as it would indicate a more disinflationary environment than the ECB expected.” However, he cautions against reading too much into any modest undershoot of the ECB’s baseline forecasts.
Perceived Inflation Is Higher Than the Official Data Suggest
President Lagarde also pointed out that perceived inflation is higher than the official data suggest.
“This gap between measured and perceived inflation is not merely a statistical curiosity– it is a historical and global regularity,” she said. “And it has implications for economic decisions and for trust in institutions– trust that helps anchor inflation expectations.”
Perceived inflation in the euro area has, on average, exceeded measured inflation by 1.2 percentage points since April 2020, when the ECB’s Consumer Expectations Survey was launched.
“Perceptions of current inflation shape expectations about future inflation,” said Lagarde, adding that they are monitoring these expectations closely “for any signs of a sustained deviation from our 2% medium-term target.”
Will the ECB Increase or Cut Interest Rates in March?
With inflation stabilizing, economists see the ECB continuing to hold interest rates steady. However, President Lagarde reiterated that the central bank will continue to follow “a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance”.
The next ECB monetary policy meeting will take place in Frankfurt on March 19.
Amundi expects the ECB to cut rates once this year, in the third quarter. “However, the strength of the euro, a tightening of credit conditions, or a deterioration in the labor market could change this forecast,” Amundi says in its latest Investment Talks report from Feb. 23.
Irene Lauro, senior economist at Schroders, expects the ECB to ignore the temporary decline in inflation, keeping rates unchanged throughout 2026.
Oxford Economics’ Rakau believes the ECB will be “quite reluctant” to add stimulus to the economy unless a more marked deterioration becomes likely. “The reason is that the ECB is worried about a pickup in underlying price pressures due to fiscal stimulus predominantly in Germany,” he says.
