KOF Monetary Policy Communicator for the Euro Area, January 2025

The ECB’s Governing Council started off the year by lowering its three key ECB interest rates by 25 basis points. Inflation continued its uptick due to base effects, as predicted by the ECB. The Governing Council expects inflation to return to its 2% target this year and settle close to the target over the projection horizon.

Annual HICP inflation in the euro area has increased to 2.4% in December, from 2.2% in November. Food price inflation decreased to 2.6% while goods inflation to 0.5%. Services inflation was recorded at 4.0%, a tick up from the previous reading. Domestic inflation continues to run high, with wages and services adjusting to the past rise in prices with a certain delay. However, wage pressures are showing signs of moderation and profits continue to buffer price developments. Most measures of longer-term inflation expectations currently stand at around 2%.