The breakdown of inflation highlights a familiar pattern. Services continued to record the strongest annual increase, at 3.4%, although this was slightly down from November.

Food, alcohol, and tobacco inflation edged higher to 2.6%, while non-energy industrial goods saw prices rise by just 0.4%.

Energy prices remained firmly in negative territory, falling 1.9% compared with a year earlier, a key factor behind the broader slowdown in headline inflation

ECB's policy in good place
With both headline and core inflation now stabilising, financial markets see limited scope for immediate action by the ECB.

According to the betting platform Polymarket, there is a 97% probability that interest rates will remain unchanged at the next Governing Council meeting in February.

The odds of a rate cut during 2026 stand at 45%, while a rate hike is seen as more unlikely, at 11%.

"The key takeaway is that price pressures are normalising after several turbulent years," said Professor Emeritus Joe Nellis, economic adviser at MHA, in an emailed comment.

“Headline and core inflation are now moving within a relatively narrow range, which suggests that the extreme volatility of the recent past is behind us, even if risks have not disappeared,” he added.

According to Nellis, caution is likely to remain the dominant theme.

“Policymakers are understandably wary of declaring victory too soon,” he said.

“Wage dynamics, shifts in global energy markets, and uneven demand across member states still pose risks to the outlook. The ECB is therefore more likely to keep borrowing costs steady unless there is a pronounced deterioration in economic conditions.”