Key Takeaways
- Eurozone headline inflation is expected to be higher than in August.
- Inflation expected to fall below 2% next year.
- The European Central Bank is not expected to make any more interest rate cuts.
The latest eurozone inflation data will be released by Eurostat on Oct. 1.
Headline inflation is forecast to be 2.3% higher than September 2024 levels, according to FactSet consensus estimates, and above August’s reading of 2% year over year.
Core inflation, which shows prices without volatile components such as energy and food costs, is expected to have risen by 2.3% year over year in September, in line with August’s reading of 2.3%.
“Economists are pinning much of this on the rising prices of fuel, food and alcohol, but with core inflation likely to come in line with the headline number, this may not be telling the full story,” says Michael Field, chief European market strategist at Morningstar.
“Either way, this month’s rise is unlikely to trouble central bankers too much, with economists recently warning that inflation could actually fall below the central bank’s 2% target in 2026.”
In August 2025, services inflation remained the main driver of Harmonised Index of Consumer Prices (HICP), contributing 1.44 percentage points (pp.). Food, alcohol and tobacco contributed 0.62 percentage points, and non-energy industrial goods provided a 0.18 percentage points boost, while energy dragged the index down 0.19 percentage points.
Could Energy Prices Push Eurozone Inflation Up in September?
According to Martin Wolburg, senior economist at Generali Investments, energy prices should become “less disinflationary” in September, largely due to base effects, or comparisons with last year’s data.
However, Wolburg thinks that the ingredients for disinflation stay in place. “With import prices having become disinflationary, wage growth having eased and producer price inflation being stable, we continue to see underlying inflation on a downtrend.” Generali Investments expects that core inflation will stall at the latest reading of 2.3% year over year.
The importance of the rise in headline inflation should not be overstated
Riccardo Marcelli Fabiani, Oxford Economics
The importance of the rise in headline inflation “should not be overstated,” says Riccardo Marcelli Fabiani, senior economist at Oxford Economics. “It should reflect unfavorable base effects in the energy component, and the outlook remains clearly disinflationary.”
Will The ECB Cut Rates One More Time in 2025?
In its last economic bulletin, published on Sept. 25, the ECB said HICP inflation is projected to “move sideways” at around 2% for the rest of 2025, and then to drop to an average of 1.7% in 2026, before recovering to 1.9% in 2027.
Core inflation is expected to fall from 2.4% in 2025 to 1.9% in 2026 and 1.8% in 2027, “as wage pressures recede and services inflation moderates, while the appreciation of the euro feeds through the pricing chain and curbs goods inflation”, according to the ECB.
The ECB remains committed to ensuring that inflation stabilizes at its 2% target in the medium term, and it will follow a data-dependent and meeting-by-meeting approach to determine the appropriate monetary policy stance, without pre-committing to a particular rate path.
The next ECB monetary policy meeting will be held in Florence on Oct. 30, and economists don’t expect a rate cut, after the central bank kept interest rates unchanged in the past two meetings. According to a Reuters poll, the view among investors is that the ECB is done with rate cuts, for now.
“We think the ECB has finished its cutting cycle and will leave rates unchanged at 2% until 2026, when it could hike by 25 basis points (basis points) at both the March and June meetings,” says Beth Beckett, economist at Capital Group in a note on Sept. 18.
Oxford Economics’ Marcelli Fabiani says: “Easing wage growth, a stronger euro, and energy prices in check will support the continuation of the cooling in inflation. But with the ECB striking a hawkish tone at the last meeting, we do not expect another rate cut this year.”
Wolburg of Generali Investments thinks that the ECB has terminated its cutting cycle and with rates staying on hold at 2% for the time being, unless some downside risks materialize.
Morningstar’s Field notes that the European equity markets have had a solid 2025 so far, despite the implementation of US tariffs and other shocks to the system. “Overall the macroeconomic has been supportive and the benefit of low interest rates should be further supportive of stocks as we close out 2025.”
