Eurozone Inflation Falls to 2.1%

Eurozone inflation has cooled further, with annual consumer price growth easing to around 2.1%, bringing it in line with the European Central Bank’s (ECB) medium-term target for the first time in about two years. This marks a notable milestone in the bloc’s long battle to rein in price pressures after a period of elevated inflation.

The slowdown in inflation was driven by a broad easing in price growth across major categories. Energy prices — which had surged in previous years — showed larger declines, while price increases for manufactured goods and services also moderated. Some components like food and alcohol saw slight upticks, but not enough to offset the overall cooling trend.

The return of inflation to near the ECB’s symmetric target of 2% has significant implications for monetary policy. Policymakers at the ECB are likely to keep key interest rates steady, given that inflation is now aligning with their goals without further tightening. Investors have reacted positively, anticipating greater clarity and stability in the ECB’s outlook for rates moving forward.

Core inflation — which strips out volatile food and energy costs — also eased, highlighting that price pressures in the underlying economy are loosening. Nevertheless, prices in some domestic sectors such as services remain elevated compared with pre-pandemic levels, suggesting that inflation dynamics will continue to be closely monitored.

Economists say this development may reduce pressure on the ECB to raise rates and could support continued economic growth across the euro area if wage growth moderates and supply-side pressures diminish further.