Inflation in the euro area cooled to 1.7% in January 2026, the lowest since September 2024, with energy prices driving the drop and December reading at 1.9%.

The ECB targets 2.0% inflation and is expected to undershoot this year, with markets not anticipating a rate cut at the upcoming policy meeting.

Some forecasters foresee a potential rate hike later in the projection, possibly in the third quarter of 2027, if domestic price pressures strengthen over time.

The analysis relies on Eurostat estimates and will be updated as more data become available.

If the trend persists, speculation about easing could intensify, with ECB communications at the upcoming rate decision and press conference closely watched for hints.

ECB policymakers are expected to hold the key rate at 2.0% at the next meeting, with markets broadly expecting no near-term change.

The deposit facility rate remains at 2.0% since last summer, and a pause on rate cuts is broadly anticipated.

Beyond energy, prices for food, alcohol, and tobacco rose 2.7% year over year, while services prices climbed 3.2%.

Core inflation, excluding energy and food, eased slightly from 2.3% to 2.2% in January, signaling broad price pressures are easing beyond volatile components.

Analysts warn of risks to the stance, including geopolitical tensions, a stronger euro, or higher-than-expected inflation prints.

Credit market surveys show mixed signals: financing conditions for firms remain tight, banks loosen consumer housing lending as demand rises, but little pressure for immediate rate cuts.

Institutions and economists—Capital Economics, ING, Commerzbank, Allianz Global Investors, Deutsche Bank—offer a range of views on timing and likelihood of further monetary easing.