| Consensus | Consensus Range | Actual | Previous | |
| HICP - Y/Y | 2.0% | 1.9% to 2.1% | 2.0% | 2.2% |
| Narrow Core - Y/Y | 2.4% | 2.3% to 2.4% | 2.3% | 2.4% |
Highlights
Euro area inflation ended 2025 on a softer footing, reinforcing the narrative of a gradual but uneven disinflation process. Headline inflation eased to 2.0 percent in December, edging closer to the European Central Bank's target and reflecting diminishing price pressures across much of the consumption basket. This moderation from November's 2.1 percent suggests that earlier monetary tightening continues to work through the economy, albeit at different speeds across sectors.
Services inflation remained the dominant driver, holding at an elevated 3.4 percent. This persistence points to ongoing wage pressures and resilient domestic demand, particularly in labour-intensive activities. Food, alcohol and tobacco inflation ticked higher to 2.6 percent, signalling that consumer essentials remain sensitive to supply-side frictions and cost pass-through. In contrast, non-energy industrial goods inflation continued to fade, underscoring weak demand and easing manufacturing pipeline pressures.
The most striking development came from energy prices, where inflation fell deeper into negative territory at minus 1.9 percent. This sharp decline provided a significant offset to stickier service prices and was central to the overall cooling in headline inflation. Taken together, the December data suggest inflation is converging towards the target, but with underlying pressures that remain uneven and policy-relevant heading into 2026. These updates bring the RPI to minus 29 and the RPI-P to minus 22, indicating that economic activity continues to lag market expectations in the Euro area.
Market Consensus Before Announcement
HICP expected at 2.0 percent on year in the first report for December versus 2.1 percent in November. Narrow core is expected unchanged at 2.4 percent versus 2.4 percent in November.
Definition
The flash harmonised index of consumer prices (HICP) provides an early estimate of the final HICP, but using just partial data. Changes in the index provide an estimate of inflation, as targeted by the European Central Bank (ECB). Final data are released a round two weeks later. 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. Two of these are made available in the flash report amongst which financial markets normally concentrate upon the narrowest which excludes energy, food, alcohol and tobacco.
Description
The measure of choice in the Eurozone is the harmonized index of consumer prices (HICP) 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 Eurozone, 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.