Inflation across the euro zone rose slightly in the latest figures, reinforcing expectations that the European Central Bank will maintain its current interest rate stance for the foreseeable future. New data from Eurostat shows annual inflation increasing to 2.2 percent from 2.1 percent, keeping it close to the ECB’s target for most of the year.
The modest rise was driven mainly by persistent price pressures in the services sector. This strength outweighed the continued decline in energy costs. When food and energy are excluded, underlying inflation held at 2.4 percent, reflecting stable price trends in core categories.
The ECB has previously indicated that inflation is moving in the right direction. Officials appear comfortable taking time to monitor developments rather than adjusting policy again. As a result, market expectations for an interest rate cut at the bank’s meeting on 18 December remain low, and the outlook for further easing in 2026 is limited.
Although inflation may fall below the 2 percent target early next year due to energy price declines, policymakers generally view such dips as temporary. Natural gas prices have fallen more than 40 percent over the past year and crude oil has dropped by over 10 percent, suggesting continued downward pressure on energy-related costs. Energy prices in November were 0.5 percent lower than a year earlier, while services inflation reached 3.5 percent and unprocessed food prices rose 3.3 percent.
Non-energy industrial goods inflation increased by 0.6 percent, an area closely observed amid concerns about the impact of low-cost imports.
Despite a challenging global backdrop, ECB officials remain encouraged by the broader economic picture. Output indicators and survey data suggest the euro zone is managing uncertainty reasonably well, with growth tracking close to potential at around 1 to 1.5 percent. Labour market conditions continue to provide support, although the unemployment rate inched up to 6.4 percent in October.
For businesses and investors, the latest data indicates a period of relative stability in both inflation and monetary policy. The ECB appears confident that underlying conditions are moving in line with its goals, reducing the likelihood of any imminent policy shifts.
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