Annual inflation in the euro area eased to 2% in December 2025, down from 2.1% in November, in line with expectations, according to preliminary figures released by Eurostat. This marks the lowest inflation reading in the currency bloc since August 2025 and signals a return to the European Central Bank's target, reinforcing market views that interest rates are likely to stay unchanged in the near term.

On a monthly basis, consumer prices rose by 0.2% in December, reversing a 0.3% decline recorded in November. Despite the monthly uptick, the overall annual trend continued to soften toward the ECB's benchmark.

The moderation in headline inflation was driven by slower price increases in several key categories. Services inflation eased to 3.4% from 3.5% a month earlier, while prices of non-energy industrial goods rose by 0.4%, down from 0.5% in November. Energy prices also played a significant role, with costs falling by 1.9% year-on-year, a sharper decline than the 0.5% drop recorded in the previous month.

By contrast, price growth for food, alcohol and tobacco picked up toward the end of 2025, accelerating to 2.6% in December from 2.4% in November, partially offsetting the disinflationary effects seen elsewhere.

Core inflation, which excludes volatile food and energy components, slowed to 2.3% from 2.4% in November. This outcome came against expectations of a fourth consecutive reading at 2.4%. On a monthly basis, core prices increased by 0.3%, indicating that underlying price pressures have not disappeared entirely.

Inflation levels varied widely across the eurozone. Estonia and Slovakia recorded the highest annual rates in December, at 4.1% each, followed by Austria at 3.9% and Croatia at 3.8%. At the other end of the spectrum, inflation was almost flat in Cyprus at 0.1%, while France posted a subdued 0.7%.

Most economists anticipate that inflation will continue to decline in the early months of 2026, potentially dipping below the ECB's 2% target. They expect falling energy prices, a strong euro, increased imports from China and moderate wage growth to outweigh persistent domestic price pressures, particularly in the services sector.