Inflation decelerates in December from prior month

Latest reading: Harmonized consumer prices rose 4.1% in annual terms in December, following a 4.7% increase in the previous month. December's reading was the weakest since January 2025. The figure remains higher than both the euro area average and the ECB’s 2.0% target. Over 2025 as a whole, harmonized inflation averaged 4.8% (2024: 3.7%). This was the highest in the euro area, as various tax rises—most notably vehicle registration tax and VAT—contributed to the increase in consumer prices. Relative to the previous month's figures, in December there were milder price pressures for food and non-alcoholic beverages (+5.6% in annual terms vs +6.6% in November), transportation (+7.7% vs +10.4% in November) and housing and utilities (+0.8% vs +3.4% in November). In contrast, there were more notable price pressures for recreation (+1.7% vs -0.1% in November) and restaurants and hotels (+5.3% vs +5.2% in November). Meanwhile, consumer prices were up 4.1% on a year-on-year basis in December, following a 4.9% rise in the previous month. Finally, harmonized consumer prices were down 0.39% in December in month-on-month terms, following a 0.48% decline in the previous month.

Outlook: Our panelists see harmonized inflation moderating in Q1 from Q4 and trending down through Q3 2026 but remaining above the ECB’s 2.0% target. On average over 2026, harmonized inflation is expected to decrease to a six-year low.

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