The ECB will be encouraged by further moderations in core and services inflation momentum in the January data.
- Although there was a small upward surprise to Eurozone headline and core inflation in the January flash round, the ECB will be encouraged by further moderations in core and services inflation momentum.
- There was early evidence that the so-called January price reset effect was smaller in 2025 than previous post-pandemic years, though NSA services inflation of -0.2% M/M was still stronger than what we’d typically see for a January in a pre-pandemic setting. More details of the underlying drivers will be available in the final HICP reading on Feb 24.
- The market reaction to the January flash inflation round was isolated to last Friday, following the softer-than-expected French and German state-level data.
- The ECB still needs to see its inflation confidence play out in the hard data, but the January flash round suggests markets and policymakers are right to focus more closely on the subdued growth outlook. At the time of writing, ECB-dated OIS price 85bps of cuts through the remainder of this year, with 62bps of easing priced through June.
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