Inflation in the Euro zone has stabilized at a rate of 2% for December, according to flash data released by Eurostat. This figure aligns with economists’ expectations and the European Central Bank’s (ECB) targeted inflation rate, marking a slight decrease from November’s rate of 2.1%. Notably, core inflation—excluding the more volatile categories of energy, food, alcohol, and tobacco—has dipped to 2.3%, down from 2.4% in the previous month. Additionally, the annual rate of services inflation has also shown signs of easing, decreasing to 3.4% from 3.5%.
In response to these figures, the ECB opted to maintain its key deposit facility rate at 2%, a decision that marks the fourth consecutive month at this rate after a series of reductions that commenced from a peak of 4% in 2024. Top officials from the ECB hinted last year that this period of easing may be reaching its conclusion, though the bank has emphasized a flexible approach to its monetary policy, reliant on ongoing data assessments.
Following the inflation report, the euro and the Stoxx 600 index showed little movement. Market analysts suggest that the return to the ECB’s inflation target could imply potential rate cuts in the near future. Michael Field, chief equity strategist at Morningstar, commented that while inflation has fluctuated around the 2% mark for much of the previous year, the latest data could bolster equity markets by presenting further justifications for rate cuts in 2026. He noted the delicate balance central bankers must maintain in stimulating the economy without triggering inflation, but with the current stable inflation figures, there may be room to adopt a more accommodative stance sooner rather than later.
