Key Takeaways
- Eurozone flash inflation in January is expected to be slightly higher than December’s revised reading.
- The strong euro is seen as exerting downward pressure on prices in the euro area.
- The European Central Bank is widely expected to keep rates unchanged at its first meeting of 2026.
In preliminary data to be released on Feb. 4, eurozone consumer prices are forecast to be 2.0% higher than in January 2025, according to FactSet consensus estimates. That is slightly up from December’s final inflation reading of 1.9%, and in line with the European Central Bank’s medium-term inflation target. The ECB’s first monetary policy meeting of 2026 will be one day later, on Feb. 5.
Core inflation, which excludes volatile components such as energy and food costs, is expected to have risen by 2.3% year over year in January, unchanged from December’s figure.
The ECB is widely expected to leave the key interest rate unchanged at its coming meeting on Feb. 5.
Michael Field, chief European markets strategist at Morningstar, says that even though January data will probably show a move higher, investors will likely shrug their shoulders. “Inflation has been hovering either side of the 2% level for most of last year, so that move would be minor,” he says.
While core inflation will probably remain above the ECB’s target, it has come down markedly over the course of last year. “From the ECB’s perspective, they will still consider this very much under control,” according to Field. “Central bankers walk a tightrope, attempting to stimulate the economy without igniting inflation. But with inflation still low and steady, they should be leaning more towards igniting economic growth in 2026.”
DWS senior economist Ulrike Kastens expects inflation to fall further to 1.7% in January 2026. “This would be the smallest increase in the cost of living since September 2024. Lower energy prices in particular are likely to be responsible for the decline. However, the core rate is expected to remain at 2.3%,” says Kastens.
What the Strong Euro Means for Eurozone Inflation – and the ECB Rate Cut Debate
“The weakening of the US dollar and hence the strengthening of the euro have led to some unease at the Bank,” says Carsten Brzeski, head of global macroeconomics research at ING. This is because a strong euro against the US dollar makes imports cheaper for buyers in the eurozone.
Austria’s central bank governor Martin Kocher told the Financial Times: “If the euro appreciates further and further, at some stage this might create, of course, a certain necessity to react in terms of monetary policy.”
The recent strengthening of the euro would lower the ECB’s December inflation forecasts by some 0.1 percentage point, bringing the ECB’s headline inflation projections below 2% for the next three years, Brzeski says- “a development that is likely to revive concerns among those Governing Council members who have long feared an inflation undershoot and view it as a risk to the ECB’s credibility.”
ECB staff updated their economic forecasts in December. They forecast overall inflation averaging:
- 2.1% in 2025 (the same as in its September forecast)
- 1.9% in 2026 (up from 1.7%)
- 1.8% in 2027 (down from 1.9%)
- 2.0% in 2028 (a new forecast)
If the euro strengthens further, the chances of rate cut in March would increase, says Brzeski.
No ECB Rate Cut Expected in February
For now, markets do not anticipate the ECB to change rates at its first meeting of the year on Feb. 5. Swap markets are pricing in broadly stable rates for most of 2026.
The ECB began easing interest rates in June 2024, and has since delivered eight rate cuts, lowering the deposit rate from 4.00% to 2.00%. Since June 11, the three key policy rates are:
- Deposit Facility Rate: 2.00%
- Main Refinancing Operations Rate: 2.15%
- Marginal Lending Facility: 2.40%
When Are the ECB Meetings in 2026?
- Feb. 5, 2026
- March 19, 2026
- April 30, 2026
- June 11, 2026
- July 23, 2026
- Sept. 10, 2026
- Oct. 29, 2026
- Dec. 17, 2026
