Finance
Euro zone inflation dips in January as soft patch begins
Published by Global Banking and Finance Review
Posted on February 4, 2026
2 min readLast updated: February 4, 2026
Quick Summary
Euro zone inflation fell to 1.7% in January due to lower energy prices. The ECB is expected to maintain interest rates as inflation remains below target.
Euro Zone Inflation Declines in January Amid Economic Softening
Euro Zone Inflation Overview
FRANKFURT, Feb 4 (Reuters) - Euro zone inflation dipped last month, data showed on Wednesday, entering a soft patch that most economists expect will last for at least a year and keep the European Central Bank on hold.
Price growth in the 21 countries that share the euro slipped to its lowest level since September 2024, dropping to 1.7% in January, weighed down by a fall in energy prices. The reading was in line with economists' forecasts.
But a key measure of underlying inflation that strips out volatile items such as energy, food, alcohol and tobacco unexpected edged down to 2.2% from 2.3 in December, as prices in the services sector continued to ease.
Current Inflation Trends
Taken together, the readings were unlikely to trigger any immediate move by the ECB, which is expected to keep interest rates unchanged on Thursday and through the remainder of the year.
Future Projections
The euro zone's central bank expects inflation to slightly undershoot its 2% target this year and next before heading back to it in 2028.
Inflation has been hovering around 2% for at least a year after a wave of price hikes fuelled by the economy's recovery from the COVID-19 pandemic and Russia's invasion of Ukraine in 2022, which pushed up fuel costs.
Market Reactions
Economists are split over whether the ECB's next move will be a cut or a hike, with some policymakers recently saying both moves are equally likely.
A recent appreciation of the euro against the dollar, partly a response to U.S. President Donald Trump's unpredictable policymaking and worries about the Federal Reserve's independence, has fuelled some market talk about a rate cut.
(Reporting by Francesco CanepaEditing by Hugh Lawson)
Key Takeaways
- •Euro zone inflation decreased to 1.7% in January.
- •Energy prices contributed to the inflation dip.
- •ECB likely to keep interest rates unchanged.
- •Inflation expected to undershoot 2% target this year.
- •Economists divided on ECB's next rate move.
Frequently Asked Questions about Euro zone inflation dips in January as soft patch begins
1What is inflation?
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured as an annual percentage increase.
2What is the European Central Bank?
The European Central Bank (ECB) is the central bank for the euro and administers monetary policy within the Eurozone, aiming to maintain price stability.
3What is GDP?
Gross Domestic Product (GDP) is the total monetary value of all finished goods and services produced within a country's borders in a specific time period.
4What is monetary policy?
Monetary policy involves the management of money supply and interest rates by central banks to control inflation and stabilize the currency.
5What is a soft patch in economics?
A soft patch refers to a period of slower economic growth or a temporary slowdown in economic activity, often characterized by reduced consumer spending and investment.
