Introduction to Eurozone Inflation
The eurozone’s inflation rate is expected to remain steady, with minimal changes anticipated in the upcoming months. This stability is largely attributed to the strong euro and the effects of US tariffs, which are exerting downward pressure on prices in Europe. As a result, the European Central Bank (ECB) is likely to keep interest rates unchanged at its December meeting.
Key Takeaways
- Eurozone inflation in November is forecast to be 2.1% higher than in November 2024, unchanged from October’s reading.
- The European Central Bank is widely expected to keep rates unchanged at its Dec. 18 meeting.
- The strong euro and US tariff effects are seen as exerting downward pressure on prices in Europe.
Current Inflation Rates
In data released on Dec. 2, eurozone inflation is forecast to be 2.1% higher than November 2024, according to FactSet consensus estimates, unchanged from October’s reading. Core inflation, which excludes volatile components such as energy and food costs, is expected to have risen by 2.4% year over year in November, also in line with October’s reading of 2.4%.
Expert Insights
According to Michael Field, chief European markets strategist at Morningstar, "We’re in goldilocks territory right now for the European Central Bank. Any higher or lower and they would be under more pressure to tinker with interest rates. But as things stand they have the luxury of sitting back and taking their time to decide if any action is required." This sentiment reflects the current stable economic conditions that allow the ECB to maintain its current stance without feeling pressured to make significant changes.
Factors Influencing Inflation
The European Central Bank is widely expected to leave the key interest rate unchanged at 2% on Dec. 18, with only a slim chance of a quarter-point rate cut implied by swap trading data. In October 2025, services inflation was the main driver of the Harmonized Index of Consumer Prices (HICP) at an annual rate of 3.4%, which was the highest reading since April. Services could pick up slightly, while the ECB maintains its ‘good place’ narrative, according to Bastian Freitag, head of fixed income Germany at Rothschild & Co Wealth Management.
Wage Growth and Inflation
Wage growth is moderating, with negotiated wages falling significantly in the third quarter to 1.9% year on year, from 4.0% previously—a decline that is consistent with the ECB’s 2% inflation target. This moderation in wage growth supports the expectation that inflation will remain under control, providing the ECB with a stable economic environment.
US Tariff Policy Impact
Carsten Roemheld, capital market strategist at Fidelity, points out that a key reason for falling inflation rates is US tariff policy, which limits exports from many parts of the world to the US. This creates an oversupply in other regions because the capacities not delivered to the US need new sales markets. As a result, it will keep inflationary pressure low in the eurozone and other parts of the world for the foreseeable future.
Currency Market Influence
Currency markets could reinforce the trend as a weaker US dollar may even nudge eurozone inflation below the ECB’s 2% target. This interplay between currency markets and inflation rates adds another layer of complexity to the ECB’s decision-making process, as it considers the potential impacts of external factors on the eurozone economy.
ECB’s Future Moves
The ECB began easing interest rates in June 2024 and has since delivered eight rate cuts, lowering the deposit rate from 4.00% to 2.00%. Since June 11, the three key policy rates are: Deposit Facility Rate at 2.00%, Main Refinancing Operations at 2.15%, and Marginal Lending Facility at 2.40%. Fidelity’s Roemheld expects the ECB to continue its interest rate pause, with futures markets not pricing in any ECB interest rate measures in the coming 12 months.
Eurozone Growth
Eurozone growth is set to remain modest, with analysts expecting only a slight uptick in 2026 as the effects of Germany’s fiscal stimulus begin to show up. The ECB’s September projections foresaw real GDP rising 1.2% in 2025, 1.0% in 2026, and 1.3% in 2027. At the December meeting, ECB staff will be presenting new forecasts on eurozone inflation and growth, including a 2028 projection for the first time.
Conclusion
In conclusion, the eurozone’s inflation rate is expected to remain stable, influenced by factors such as the strong euro, US tariff effects, and moderating wage growth. The European Central Bank is likely to maintain its current interest rates, given the stable economic conditions and the absence of significant inflationary pressures. As the ECB continues to monitor the economy and consider external factors, its decisions will be crucial in maintaining the eurozone’s economic stability and growth.
