In January 2026, the Euro Area saw a notable cooling in cost pressures as annual inflation was confirmed at 1.7%, a drop from the 2.0% recorded in December.
This mark represents the lowest inflation level since September 2024, a shift that occurred alongside a significant strengthening of the euro, which surpassed the $1.20 threshold, its highest valuation in over four years.
This currency appreciation helped dampen price growth across several sectors; specifically, services inflation moderated to 3.2%, and the cost of processed food, alcohol, and tobacco slowed slightly to 2.0%. The most dramatic downward pressure came from energy prices, which plummeted by 4.0% in January, more than doubling the pace of the decline seen the previous month.
Despite the general downward trend, some sectors experienced upward pressure. Inflation for unprocessed food climbed to 4.2%, up from 3.5% in December, while non-energy industrial goods saw a marginal uptick to 0.4%.
However, the underlying trend remained soft, as evidenced by core inflation which strips out volatile items like energy and food, falling to 2.2%. This is a significant milestone, marking its lowest point since October 2021.
The slowdown was visible across most of the bloc’s major economies, though the intensity varied by country.