Euro-area inflation fell to 1.7% in January, down from 1.9% in December. Core inflation dropped to 2.2%, below the consensus forecast of 2.3%. The ECB is not expected to change rates on Feb. 5, but talk of cuts later in 2026 is likely. Energy prices slumped, affecting overall inflation.

Consumer prices in the eurozone rose by 1.7% in January, below the 2% target. Core inflation at 2.2% was lower than expected. Eurostat’s data precedes the ECB meeting on Feb. 5. Equity markets were quiet as the euro’s strength impacted inflation. Analysts see potential rate cuts in 2026.

Services inflation was the main driver at 3.2%, while food, alcohol, and tobacco prices rose by 2.7%. Energy prices fell by 4.1%, contributing to the decrease in overall inflation. The debate over ECB rate cuts in 2026 has been reignited by the lower-than-expected inflation data.

Inflation rates across the eurozone varied widely, with France at 0.4% and Slovakia at 4.2%. Germany saw 2.1% inflation, while Italy, Spain, and the Netherlands had rates of 1.0%, 2.5%, and 2.2%, respectively. The ECB is expected to maintain rates due to steady economic growth and moderate inflation.

Read more at Morningstar: Eurozone Inflation Lower Than Expected in January