Europe Inflation Falls to 1.7%: ECB Likely to Hold Rates at 2/5 Meeting

Eurozone annual inflation in January fell to 1.7%, the lowest since September 2024, with core inflation at 2.2% and monthly price declines reaching 0.5%, the steepest since November 2023. Germany (2.1%), Italy (1.0%), and France (0.4%) posted subdued readings, while Slovakia recorded 4.2%. Economists see the easing driven by weak demand and a strong euro, with import price support offset by reduced export competitiveness. With inflation near target and growth subdued, the ECB is expected to keep policy unchanged at its first 2026 meeting on February 07 (next Tuesday), citing conditions consistent with staff projections. Markets reacted modestly: the euro remained near 1.18 vs the dollar, German Bund yields held at 2.88%, and Euro STOXX 50 gained 0.3% as equities rose slightly.