Eurozone “Cools Down”: Inflation Falls, Markets Await ECB
Eurozone inflation has eased again and is now clearly below the ECB's 2% target. Eurostat's flash estimate data released on Wednesday (February 4) showed consumer prices rose 1.7% year-on-year in January 2026, down from 2.0% in December.
What's making the market even more concerned is that the services component—usually the most "sticky"—also softened. Services inflation fell to 3.2% from 3.4% the previous month. At the same time, the "core" measure of the HICP (removing energy, food, alcohol, and tobacco) was recorded at 2.2%.
The main driver of the headline decline this time came from energy. Eurostat recorded energy inflation at -4.1%, a deeper decline than in December (-1.9%). This contributed to the overall figure falling more rapidly, even though other components remained mixed.
On the other hand, the persistent "culprit" of inflation is actually food, alcohol, and tobacco, which rose to 2.7% (from 2.5%). Meanwhile, non-energy industrial goods rose slightly to 0.4% (from 0.3%). So, the story isn't that all components are falling simultaneously—it's that energy and services are the ones that are most helping to suppress inflation.
This data was released just ahead of the ECB's policy meeting, where the market widely expects interest rates to remain on hold (deposit rate at 2%) for the fifth consecutive year. Investors' focus is usually not just on whether to hold or not, but on the language at the press conference: is the ECB starting to worry about inflation falling too far, or is it still wary of pressure on service prices and wages.
Interestingly, the recent strengthening of the euro could also be another "inflation suppressing" factor (imported goods becoming relatively cheaper). So, even though the headline figure is already below 2%, the ECB still needs to balance two risks: cooling inflation versus services/wages that are not yet completely tamed.
Source: Newsmaker.id
