The latest figures suggest that inflation in the euro area is easing gradually, with the annual rate falling to 2.1 percent in October 2025 from 2.2 percent in September. The composition of inflation shows that services continue to shape the inflation landscape, contributing 1.54 percentage points (pp), which reflects persistent costs in labour-intensive sectors.

Food, alcohol and tobacco added 0.48 pp, suggesting that household essentials still exert upward pressure on budgets. Non-energy industrial goods made a modest 0.16 pp contribution, suggesting some stability in supply chains. Notably, energy contributed minus 0.08 pp, signalling that declining or stabilising energy prices are helping offset increases in other categories.

Regionally, headline inflation fell in Germany (2.3 percent after 2.4 percent), France (0.8 percent after 1.1 percent), and Italy (1.3 after 1.8 percent). However, headline inflation rose in Spain (3.2 per cent after 3.0 per cent). Inflation rates in France and Italy remain below the European Central Bank's target, while Germany and Spain continue to exceed it.

Indeed, the latest data points to a euro area economy where inflation is moving closer to the European Central Bank's target, supported by softer energy prices but still influenced by structural pressures in services and essential goods. The latest update takes the RPI to minus 4 and the RPI-P to minus 17, meaning that economic activities, adjusted for prices are now behind the expectations of the euro area economy.

Forecasters anticipate no revision from the flash with HICP up 2.1 percent on year and HICP narrow core up 2.5 percent on year.

The harmonised index of consumer prices (HICP) is a measure of consumer prices used to calculate inflation on a consistent basis across the European Union. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Eurostat provides statistics for the EU and Eurozone aggregates, individual member states and for the major subsectors. Over the short-term, the central bank focusses on a number of core measures which seek to strip out the most volatile components and so give a much better guide to underlying developments. Amongst these, financial markets normally concentrate upon the narrowest gauge which excludes energy, food, alcohol and tobacco.

The measure of choice in the European Monetary Union (EMU) is the harmonized index of consumer prices which has been constructed to allow cross member state comparisons. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In the European Monetary Union, where monetary policy decisions rest on the ECB's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the HICP are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.