Eurozone inflation edges up on slower energy decline

Euro area consumer price inflation accelerated to 2.2% in September 2025, up from 2.0% recorded in each of the previous three months, moving slightly above the European Central Bank’s 2% mid-point target, according to preliminary estimates.

The uptick was primarily driven by a smaller decline in energy prices, which fell just 0.4% compared with a sharper 2.0% contraction in August, signaling that the deflationary impulse from the energy sector is beginning to fade.

Services inflation also edged higher, rising to 3.2% from 3.1% in August, highlighting the persistent price pressures in labor-intensive sectors where wage growth remains elevated.

Meanwhile, food, alcohol and tobacco prices increased at a slower pace of 3.0% compared with 3.2% in the prior month, largely due to weaker gains in unprocessed food costs.

Prices for non-energy industrial goods held steady, posting a 0.8% annual increase for the third month in a row, pointing to limited pass-through from input costs despite ongoing supply chain adjustments.

Core inflation, which strips out volatile components such as energy, food, alcohol, and tobacco, remained stable at 2.3%, its lowest level since January 2022. This steady reading suggests underlying price pressures are easing only gradually, keeping the ECB cautious on its rate outlook.

Looking ahead, economists expect that inflation could hover near the ECB’s 2% target in the coming months, with upside risks stemming from energy market volatility and geopolitical tensions, while weaker domestic demand and fading food price growth may help anchor headline rates.

Markets broadly anticipate that the ECB will keep its deposit rate unchanged at 2% at the September meeting, with policymakers signaling a data-dependent approach for the remainder of the year.