Euro area annual inflation down to 1.7% – Euro indicators

The Economic Pulse — a weekly data-led briefing explaining what the latest economic numbers mean in real life.

Sections:
State of the economy |
Growth, income and spending |
Saving and investment |
National differences |
What changed |
What to watch |
What this means for you

As we reflect on the current economic landscape, the euro area demonstrates a notable shift towards stabilisation, with inflation trends indicating a measured decline. This observed momentum suggests a recalibration of consumer prices, particularly within key sectors like services, which continue to exert a significant influence on overall inflation dynamics.

The state of the economy this week

This week, inflation trends in the euro area showed signs of easing, with a projected decline in the overall annual rate. While services and food categories remain relatively stable, energy prices have continued to drop sharply, signaling potential relief for consumers. This shift suggests a possible shift towards a more moderate economic environment as various sectors adjust to changing cost dynamics.

Growth, income and spending

Euro Area Developments: Growth, Income, and Spending

In January 2026, annual inflation in the euro area is projected at 1.7%, a decline from 2.0% in December 2025, indicating a slight easing in overall price pressures, according to Eurostat. This reduction suggests a favorable shift towards more stable inflation levels.

Breaking down the components of inflation, services continue to lead with an annual rate of 3.2%, though down from 3.4% in the previous month. The category of food, alcohol, and tobacco follows with inflation increasing to 2.7% from 2.5%. Meanwhile, non-energy industrial goods saw a slight uptick to 0.4% from 0.3%, whereas energy prices experienced a significant drop of -4.1%, compared to -1.9% earlier.

These variations reflect underlying changes in consumer spending patterns and income distribution, indicating a complex landscape for growth. The specific decline in energy prices may lessen overall inflationary pressures, potentially influencing consumer purchasing power positively.

As the economic landscape evolves, ongoing monitoring by Eurostat will provide further insights through statistics expected on February 25, 2026, offering a comprehensive view of the trends in growth, income, and spending across the region.

Saving and investment behaviour

Changes in saving and investment behavior in the euro area indicate a notable shift as annual inflation is projected to decrease from 2.0% in December to 1.7% in January 2026. This decline in inflation may influence consumer behavior, likely resulting in adjustments in spending patterns and savings strategies.

Additionally, specific components of inflation exhibit varied trends. Services have the highest annual rate at 3.2%, down from 3.4%, while food, alcohol, and tobacco show an increase from 2.5% to 2.7%. Non-energy industrial goods present a slight rise, while energy prices experience a significant decline from -1.9% to -4.1%.

These inflation dynamics may lead to changes in investment focus and saving priorities among consumers and businesses alike, reflecting adjustments based on cost of living and purchasing power.

Diverging national patterns

Across different countries within the euro area, inflation rates reveal significant disparities that reflect underlying economic conditions and regional factors. For example, while the overall euro area annual inflation is projected to decrease slightly to 1.7% in January 2026, the components show varying rates; services are expected to lead with a rate of 3.2%, indicating persistent demand and cost pressures in that sector. In contrast, energy prices are projected to decline further, illustrating different inflation dynamics where sectors such as energy are recovering from higher previous rates.

Specific nations may exhibit distinct trends based on their economic structures and responses. For instance, countries heavily reliant on energy imports might experience stronger fluctuations than those with diversified energy sources, leading to divergent inflation experiences.

Furthermore, while some countries might see relatively stable food and non-energy goods prices, others could be influenced by regional supply chain disruptions, affecting local inflation rates differently. This divergence indicates not only the impact of national policies and consumer behaviours but also the economic resilience and vulnerabilities of individual countries within the euro area context.

What changed since last week

Key Updates in the Euro Area Inflation Flash Estimate:

1. Inflation Rate Change: The annual inflation rate for January 2026 is expected to decrease to 1.7% from 2.0% in December.
2. Component Rates:
   • Services: Drop from 3.4% in December to 3.2% in January.
   • Food, Alcohol & Tobacco: Slight rise from 2.5% to 2.7%.
   • Non-Energy Industrial Goods: Increase from 0.3% to 0.4%.
   • Energy: Significant decline from -1.9% to -4.1%.
3. Geographical Inclusion Update: Bulgaria is now included in the euro area statistics as of January 2026, changing the designation from EA20 to EA21.
4. Data Confidentiality: Estonia’s data for January 2026 is confidential until 6 February 2026; weights for several countries will remain confidential until 25 February 2026.
5. Next Release Date: Full data for January 2026 will be available on 25 February 2026.

What to watch next

Upcoming Economic Data Schedule

Euro Area:

• January 2026 Inflation Flash Estimate
  • Expected Release Date: End of January 2026
  • Annual Inflation Estimate: 1.7% (compared to 2.0% in December)
  • Components Inflation Rates:
    • Services: 3.2% (vs. 3.4% in December)
    • Food, Alcohol & Tobacco: 2.7% (vs. 2.5% in December)
    • Non-Energy Industrial Goods: 0.4% (vs. 0.3% in December)
    • Energy: -4.1% (vs. -1.9% in December)
• Complete HICP Data Release for January 2026
  • Scheduled Release Date: 25 February 2026

Notes

• Flash estimates are published at the end of each reference month.
• Accessible data may be confidential until specified dates, affecting the calculation of European aggregates.
• Euro area composition changed on 1 January 2026, now including Bulgaria (EA21).

TL:DR

• Euro area inflation is projected to decrease to 1.7% in January 2026, down from 2.0% in December 2025.
• Services are expected to have the highest inflation rate at 3.2%, despite a slight decline from December.
• Food, alcohol, and tobacco prices also rose, now at 2.7%, while energy prices showed a sharper downturn at -4.1%.
• The full data release for January 2026 is scheduled for February 25, 2026.

What this means for you

The recent Eurostat estimate indicates that annual inflation in the euro area is projected to decline to 1.7% in January 2026, down from 2.0% in December 2025. This shift reflects significant variations in different sectors: services are expected to lead with a 3.2% increase, while energy prices are anticipated to drop further to -4.1%. Households may notice these changes in their monthly bills, particularly as energy costs decrease, potentially easing living expenses. Meanwhile, businesses in the service sector might anticipate maintaining higher pricing power due to sustained consumer demand.

These inflation trends have broader implications for purchasing power and consumer confidence. For instance, retailers adjusting their prices in response to rising costs for food and services may influence shopping habits, prompting consumers to be more selective with their spending. Similarly, manufacturers facing stable prices in non-energy goods might find it beneficial to reassess production and pricing strategies to remain competitive in a shifting economic landscape.

Data and sources

This briefing is based on official figures published by
Eurostat,
the statistical office of the European Union and European data from banks and think tanks, which we analyse daily.