Key Highlights

• Headline inflation eased to 1.7 percent in January from 2.0 percent in December 2025

• Lowest inflation reading in nearly one year across the eurozone

• Services inflation remains high at 3.2 percent, showing persistent domestic cost pressures

• Food, alcohol, and tobacco prices rose 2.7 percent year on year

• Cooling energy and goods prices are driving the overall decline

• Policymakers remain cautious due to uneven inflation trends across sectors

Inflation Cools Further Across the Eurozone

Inflation across the euro area continued its downward path in January 2026, offering fresh signs that the period of very high prices may be coming to an end. According to the latest flash estimate from Eurostat, headline inflation slowed to 1.7 percent, down from 2.0 percent in December 2025. This is the lowest inflation reading seen in almost a year.

The decline suggests that the eurozone economy is gradually moving away from the intense price pressures experienced over the past few years. For households and businesses, this trend brings some relief after a long stretch of rising living costs.

Services Inflation Remains Sticky

Even though overall inflation has cooled, one area continues to show strong price growth. Services inflation stood at 3.2 percent in January. This is important because services prices are often linked to wages and domestic demand rather than global commodity prices.

For policymakers, services inflation is a key measure of underlying price pressure. It shows that while energy and goods prices may fall quickly, prices in labour-intensive sectors such as hospitality, transport, healthcare, and personal services tend to adjust more slowly.

This stickiness indicates that inflation is not disappearing evenly across the economy.

Food Prices Still Affect Households

Prices in the food, alcohol, and tobacco category rose 2.7 percent year on year. While this is lower than the peaks seen during the height of the inflation surge, it still affects daily household spending, especially for lower-income families.

Food prices are often the most visible form of inflation for consumers. Even moderate increases in this category can keep the sense of high cost of living alive despite improvements in other areas.

What Is Driving the Cooling Trend

Several factors are contributing to the decline in overall inflation:

• Softer energy prices compared to previous years

• Easing supply chain disruptions

• Slower demand across parts of the economy

• Stabilization in global goods prices

These changes have reduced pressure on goods-related inflation, which had earlier driven the sharp rise in prices across the eurozone.

Why Policymakers Remain Careful

The mixed picture of cooling headline inflation and persistent services inflation explains why central banks remain cautious. The European Central Bank closely monitors services prices because they reflect local economic conditions and wage growth.

While the latest data supports the view that the eurozone is entering a disinflation phase, it is not yet a fully comfortable inflation environment. Policymakers will likely wait for broader and more consistent cooling across all sectors before relaxing their stance.

A Gradual Return to Price Stability

The January inflation data shows that inflation risks in the eurozone are becoming more controlled. However, the uneven trend across sectors suggests that the journey back to full price stability is still ongoing.

For now, the eurozone appears to be moving in the right direction, but careful monitoring will continue as services inflation remains a key concern for economic authorities.