Eurozone Inflation Moderates Slower Than Expected, Driving Policy Reassessment

Eurozone inflation data for January reveals a stickier-than-anticipated outlook, with price pressures moderating far slower than previously forecast. According to Pantheon Macroeconomics analysts Claus Vistesen and Ankita Amajuri, this moderation falls short of earlier expectations, prompting a significant upward revision of the inflation forecast. The research firm now projects January’s inflation rate at 1.8%, substantially higher than the prior 1.6% estimate, signaling more persistent price pressures across the bloc.

Germany’s Resilient Price Pressures Exceed Forecasts

Germany’s inflation data presents a complex picture that challenges prior assumptions. While energy sector relief from lower electricity and gas prices appeared poised to ease overall price growth, the expected benefits have been more than offset by sharp rebounds in food and core goods categories. The services sector, in particular, continues to demonstrate stubborn inflation that resists moderation, more resistant than energy deflation can counterbalance. This combination suggests that underlying demand-side pressures remain firmer than initially anticipated, complicating the disinflationary narrative.

Spain’s Core Inflation Remains More Resilient Than Base Effects Suggest

Spain’s inflation dynamics present a deceptive picture when viewed through headline figures alone. Although overall inflation appears to have declined, this improvement derives substantially from favorable base effects rather than genuine disinflation. When examining core inflation—which strips away volatile components—the picture emerges as more stable than headline rates suggest. This stability, rather than decline, indicates that price pressures in Spain’s services and goods sectors remain embedded, challenging the assumption of rapid normalization.

Delayed Rate Cuts as Robust Growth Complicates Policy Path

The Eurozone’s solid fourth-quarter 2025 GDP performance and resilient labor market, with unemployment remaining stable, have compounded the disinflationary challenge. Robust economic fundamentals leave less room for aggressive rate cuts than central bankers may have previously envisioned. The European Central Bank now faces a policy backdrop where inflation proves more tenacious than recent trends suggested, while growth remains firmer than expected. This combination effectively delays the rate-cut cycle that markets had been pricing in, reshaping monetary policy expectations for 2026.